Secretive gathering of ships off coast of Malaysia

Secretive gathering of ships off coast of Malaysia
Written by South China Morning Post
Monday, 05 October 2009 12:25

HONG KONG: In the soupy green tropical waters that lap the jungle shores of southern Malaysia, a lone Indian officer in a peaked cap glares anxiously down from the 280-metre-long deck of a towering container ship anchored alongside countless other idle vessel.

As our ramshackle wooden fishing boat bobs up and down on the waves, perilously close to the ship, he shoos us away and then, spotting the photographer, scurries back into the echoing vastness of the vessel he has been left to look after almost by himself.

Navigating a precarious course around the hull of the Panama-registered ship, we reach its bow and notice something else extraordinary. It is tied side by side to a container ship of almost the same size. The mighty sister ships sit high in the water.

Nearby, as we meander in searing midday heat and dripping humidity between the hulls of silent ships, a young European officer peers curiously at us from the bridge of an oil tanker owned by Maersk, the world's biggest container shipping line. We ask to go on board, but are waved away by two Indian crewmen. "No one is supposed to be here and they are very frightened of pirates," explains our captain.

Here, on a sleepy stretch of shoreline, we have tracked down what might count as the biggest and most secretive gathering of ships in maritime history. Over the past year, as the global economic crisis has deepened, hundreds of container ships, bulk carriers and oil tankers have congregated, drawing an iron curtain along more than 30 kilometres of Johor state coastline.

With its palm-fringed sandy beaches and lush hinterland, this could be an enticing destination for tourists. Instead, a forbidding armada of steel has sailed quietly in from around the world to transform it into a last resort for the global shipping industry.

Offshore from the bamboo huts and fishing villages, between 300 and 500 vessels, equivalent to the United States and British navies combined, have gathered. It's a remarkable sight and one that shipowners and government economists would prefer you not to see. This vast "ghost fleet" - which, in better times, would have been steaming fully laden between China, Europe and the US to stock shops ahead of Christmas - is symbolic of the depths of the sickness still ravaging the world's economies.

"We know the ships are anchored out there somewhere but we aren't sure exactly where," an officer from one of the sailors' unions in Singapore told us. "People have flown over the area and talked of seeing a massive number of ships off the coast of Malaysia, so that's probably the place to look." And it is.

With the waters of Singapore already teeming with ships paying hefty anchorage fees, idle vessels are instead being anchored in shallow international waters between the southern coast of Malaysia and the Indonesian island of Batam.

Fisherman Ah Wat, 42, who lives in Sungai Rengit, Johor, says: "Before, there was nothing out there - just sea. Then the big ships suddenly came one day, and every day there are more of them. Some of them stay for a few weeks and then go away. But most of them just stay. You used to look from here straight over to Indonesia and see nothing but a few passing boats. Now you can no longer see the horizon."

The size of the idle fleet is so great you can only begin to guess at its number when the ships' lights are switched on after sunset. Seen from the shore, a blaze of light stretches from one end of the horizon to another. Standing in the darkness among the palm trees and bamboo huts is a surreal and disorienting experience, making you feel as if you are adrift on a dark sea staring at an illuminated city.

"We don't understand why they are here," says Ah Wat. "There are so many ships - there must be nearly 500 out there - but no one seems to be on board. When we sail past them in our fishing boats, we never see anyone.

"They are like real ghost ships and some people are scared of them. They believe they may bring a curse with them and that there may be bad spirits on the ships."

Tim Huxley, chief executive of Wah Kwong Shipping in Hong Kong, says: "A couple of years ago, those ships would have been steaming back and forth, going at full speed, but now you have got something like 12 per cent of the world's container ships currently doing nothing."

Shipowners choose to anchor vessels in waters close to Singapore because it is well positioned for key global trade routes when the economy revives, Huxley says. It is also seen as a safe haven because of the region's benign climate and relatively low typhoon count.

Business for bulk carriers has picked up slightly in recent months, largely because of the mainland's revived appetite for raw materials such as iron ore, says Huxley, but this is a small part of international business, and the prospects for the container trade remain bleak. Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in what Maersk calls a "crisis of historic dimensions". Last month, the company reported its first half-year loss since it was founded, 105 years ago.

Martin Stopford, managing director of Clarksons, London's biggest ship broker, says: "In 2006 and 2007, [container] trade was growing at 11 per cent. In 2008, it slowed down by 4.7 per cent. This year we think it might go down by as much as 8 per cent. Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent. Twenty per cent spare is a lot of spare of anything - and it's come out of nowhere."

Trade is slowing because retailers in the West are running on very low stock levels, not only because they expect consumer spending to be down, even ahead of Christmas, but also because their levels of credit have shrunk, so they are unable to keep large stockpiles.

Stopford explains: "Globalisation and shipping go hand in hand. Worldwide, we ship about 8.2 billion tonnes of cargo a year. That's more than one tonne per person and probably two to three tonnes for richer people like us in the West. If the total goes down by 5 per cent or so, that's a lot of cargo that isn't moving.

"We will find out at Christmas whether there are enough PlayStations in the shops or not."

About 4,800 kilometres northeast of the ghost fleet of Johor, the shipbuilding capital of the world rocks to an unpunctuated chorus of hammer guns blasting rivets the size of dustbin lids into shining steel panels that are then lowered onto the decks of massive new vessels.

As the shipping industry teeters on the brink of collapse, the activity at boatyards such as Ulsan and Mokpo in South Korea looks like a sick joke. But the workers in these bustling shipyards, who teem around giant tankers and mega-vessels the length of several football pitches, have little choice; they are trapped in a cruel time warp.

A decade ago, South Korean president Kim Dae-jung issued a decree to his industrial captains: he wished to make his nation the market leader in shipbuilding. By 2004, his vision had been made real. His country's low-cost yards were winning 40 per cent of world orders. Japan was second, with 24 per cent, and China accounted for 14 per cent.

But shipbuilding is a horrendously hard market to plan. There is a three-year lag between the placing of an order and the delivery of a ship. With contracts signed, down payments made and work under way, stopping work on a new ship is the economic equivalent of trying to change direction in an oil tanker travelling at full speed towards an iceberg.

The labour in Korean shipyards represents the completion of contracts ordered in the fat years of 2006 and 2007. Those ships are doomed to sail out into a global economy that no longer wants them.

Maersk announced last month that it was renegotiating terms and prices with Asian shipyards for 39 ordered tankers and gas carriers. Maersk's Kristian Morch told the global shipping newspaper Lloyd's List: "It is a perfect storm. You have a contraction of oil demand, you have a falling world economy and you have a contraction of financing capabilities - and at the same time a lot of new ships are being delivered."

Demand peaked in 2005, when, with surplus tonnage worldwide standing at just 0.7 per cent, shipowners raced to order, getting in before docks and berths at major shipyards were fully booked. That spell of panic buying has heightened today's mismatch between supply and demand.

Keith Wallis, East Asia editor of Lloyd's List, says: "There was an ordering frenzy on all types of vessel, particularly container ships ... fuelled by consumer demand in the UK, Europe and North America, as well as the demand for raw materials from China."

Most orders to be delivered within the next six to nine months will be honoured, Wallis predicts, and the ships will go into service at the expense of older vessels, which will be scrapped or anchored off places such as southern Malaysia.

"Some shipowners won't be able to pay their final instalments when the vessels are completed," says Wallis. "Normally, 50 to 60 per cent is paid on delivery."

South Korean shipyard Hanjin Heavy Industries says it has had to put up for sale three container ships ordered at a cost of US$100 million by Iran's state shipping line after the Iranians said they could not pay the bill.

"The prospects for shipyards are bleak, particularly for the South Koreans, where they have a high proportion of foreign orders," Wallis says. "Whole communities in places like Mokpo and Ulsan are involved in shipbuilding and there is a lot of sub-contracting to local companies.

"The problems will start to emerge next year and certainly in 2011, because that's when the current orders will have been delivered. There have hardly been any new orders in the past year. In 2011, the shipyards will simply run out of ships to build."

Christopher Palsson, a Sweden-based senior consultant at Lloyd's Register-Fairplay Research, says: "Some ships will be sold for demolition but the net balance will put even more pressure on the freight rates and the market itself. A lot of shipowners and operators are going to find themselves in a very difficult situation."

The current downturn is the worst in living memory and more severe even than the slump of the early 1980s, Palsson says.

"Back then the majority of the crash was for tankers carrying crude oil. Today we have almost every aspect of shipping affected - bulk carriers, tankers, container carriers ... the lot," he says. "It is a much wider-spread situation that we have today. China was not a major player in the world economy at that time. Neither was India. We had the Soviet Union. We had shipbuilding in Europe. But then, back in those days the world was a very different place."

Nowhere are those stark economic realities being felt as keenly as in the waters off southern Malaysia. Singapore port chaplain Christian Schmidt says that for the sailors stranded at sea, the pressures are immense.

"There will be a skeleton crew of maybe six to eight people. Some vessels stay that way for one, two or three months. For the crew, it's a tremendous psychological strain. You are stuck with the same small group of people and you have no idea how long it will be for," he says. "It's a very difficult situation. Seafarers tend never to make a big deal out of the hardships they suffer. They say this is what you expect when you go to sea. But in their current situation, many of them cannot keep in touch with their families and relatives. It is as if they are chained up in a prison."

On the shore, the strain is showing as well. "We just want them to go away," says retired fisherman Ha Heng, 62. "They are destroying our livelihood. Fishermen can't cast their nets because there are so many ships and the oil that washes up on the beaches is killing the fish. We've had enough.

"One day, we would like to be able to look out and see the horizon again." - South China Morning Post