Cargotec's ship gear unit feeling impact of falling vessel demand

Helsinki: Cargo-tec, the world's biggest maker of container-lifting gear, forecast falling orders and increasing cancellations at its ship-equipment division as the financial crisis hurts new vessel demand, according to chief executive officer (CEO) Mikael Maekinen.

"We're analysing worst-case scenarios at minus 20 per cent and minus 50 per cent" for group sales, the CEO said in an interview at the company's Helsinki headquarters. "That doesn't mean it will happen, but we have to know what to do if it does."

Second look

Shipowners are reconsidering new purchases as declining commodities prices hurt freight rates and credit gets more expensive. The falling steel price is also keeping Cargotec's customers from scrapping old vessels, adding to the perception that too many ships are in service and further hurting demand for new ones, Maekinen said.

"I don't believe there will be huge cancellations for next year's deliveries," but orders for ships to be delivered from 2011 will suffer, Maekinen said. "There will definitely be cancellations. Will it be 10 per cent? Will it be 20 per cent? It's too early to say." The MacGregor ship-equipment division's cancellation rate is currently up to five per cent, from a typical level of three per cent, he said.

The company, which has already reported lower orders for its Hiab truck-mounted cranes, expects to lose replacement orders for its Kalmar container-terminal gear as harbour capacity goes unused, Maekinen said.

MacGregor, which competes with smaller Norwegian rival TTS Marine ASA, has been Cargotec's fastest-growing division and accounted for about 25 per cent of sales last year.

Supplier bottlenecks have eased and that is lowering prices, Maekinen said.

"A year ago we were only fighting with suppliers about delivery times," he said.

"And at that time the cost could be passed on because the customer was also in a hurry. Now the customers are not prepared to pay extraordinary prices for extraordinary efforts. And the subsuppliers need to safeguard the volume", making them more flexible on prices.

Cargotec is cutting 700 jobs in western Europe and the US this year and Maekinen says he doesn't know if more cuts will be needed next year.

The company is expanding in Asia, where most new shipbuilding takes place, and has slowed the pace of acquisitions, since "we have acquired most of the companies we wanted to have", Maekinen said.

Buffer

MacGregor's order book will buffer it for the next two years, Maekinen said. The ship gear division had 2.48 billion euros (Dh11.5 billion) in accumulated orders at the end of third quarter this year, more than three times last year's sales.

Finnish ship engine maker Waertsilae said last month that its order book may shrink by as much as 10 per cent through 2010 as freight companies cancel plans to add new vessels.