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TOKYO: Mitsui O.S.K. Lines (MOL) has ordered four ultra large (ULCV) 20,000 TEU containerships from Samsung Heavy Industries and signed an MOU with Shoei Kisen Kaisha for the long-term charter of two more. All six vessels will be launched and delivered in 2017 for services between Asia and Europe.

Drewry Maritime Research says with container ship owners carrying US$80 billion in debt, only those with healthy balance sheets will be able to finance this new round of ULCV newbuilds while the remainder will have to rely on long-term charters.

MOL container shipNoting the third-quarter of 2014 was the most profitable for the container industry since the same period two years earlier, Drewry thinks the sector has a "long way to go" to recover its financial health.

"Record losses in the past five years and constrained operating cash flows have seen the industry pile on excessive debt, not only to finance their order books but also to raise expensive short-term capital to finance their working capital needs.

Meanwhile, the operating cash flow has remained extremely weak since the onset of the global financial crisis, barring 2010 when the carriers enjoyed the fruits of an unprecedented demand surge, led by restocking, " said the research company.

Drewry thinks publicly listed carriers "need to get their houses in order before it is too late", and cites the example of NOL having to sell APL Logistics - a core asset - to remain viable.

With the industry's capital structure skewed towards debt as equity financing remains scarce, Drewry says current levels of debt will damage the industry's long-term profitability and the absence of dividends will put a serious strain on shareholder confidence in the future.

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