ANALYSIS - Downturn has shippers sailing for overhaul

By Harry Suhartono and Alison Leung

SINGAPORE/HONG KONG (Reuters) - A slow recovery in global trade and tight finance could set the stage for a wave of consolidation in the trillion-dollar shipping industry, as it gears up for a second straight year of turmoil in 2010.

Hundreds of empty container ships, bulk carriers and others -- the so-called "ghost ships" -- have been idled in deep-sea ports of Asia and Europe this year, following a slump in freight as the global financial crisis caused world trade to plunge.

Industry watchers estimate as much as 15 percent of the world's commercial shipping fleet could end up out of commission next year. That will only get worse as new ships ordered during the pre-crisis boom years get delivered, boosting current supply by up to another 40 percent over the next few years.

"More bankruptcy is expected in the market with new (ship) building and tough financing situations still affecting the sector," said Ng Sem Guan, an analyst at OSK Research in Kuala Lumpur.

While the broader outlook remains bleak, dry bulk shippers that focus on commodities have seen some signs of bottoming out in freight rates and even nascent price hikes as countries like China spend billions of dollars on infrastructure under its stimulus plans.

The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, rose to 4,220 this week from a low of 663 last December on strong Chinese demand for iron ore and coal.

"So it is positive for the dry bulk shipping sector, which carries iron ore, coal and other resources, but less so for container liners that rely on exporting goods to consumers in the west," said HSBC after a shipping conference in October.

HSBC is overweight on dry bulk shippers, including Pacific Basin and Sinotrans Shipping, which have strong balance sheets with net cash positions built up before the worst of the downturn.