Global shipping is experiencing a downturn that's even worse than during the 2008 financial crisis, China's transportation minister said on Thursday, with the outlook for the industry made increasingly uncertain by the European debt crisis, Reuters reports. The shipping industry, a bellwether of economic activity because of its role in world trade, saw chartering rates plummet from mid-2008 to the end of that year.
A recovery through 2009 and 2010 came to a grinding halt this year as the European debt crisis threatened to snuff out nascent economic growth and as vessels ordered during the boom started to arrive on the market.
Participants at a global shipping industry conference in Boao, on the southern Chinese island province of Hainan, don't expect the industry to turn up again until 2014, according to an informal survey by HSBC at the event.
"This condition may last for a relatively long period of time," transportation minister Li Shenglin told the event.
China is particularly important for the shipping industry as its huge appetite for raw materials has been one of the key factors supporting rates.
The supply glut, made worse by economic woes in the United States and Europe, has pushed rates for dry bulk vessels that transport goods such as iron and coal below 2,000 on the Baltic Exchange , less than a fifth of the 2008 peak.
On the flip side, rising fuel and other costs have squeezed operators' margins. Global benchmark Brent crude LCOc1 has averaged more than $100 this year for the first time ever.
"The industry is double hit by the supply and demand imbalance and rising costs, especially fuel costs," Li said.
China COSCO Holdings Co Ltd , operator of the world's largest bulk cargo fleet and a major global container shipper, has been able to slash charter costs after successful renegotiations with ship owners, its chairman said.
"The negotiations went well. Most of the ship owners have agreed to reduce charter costs," COSCO Chairman Wei Jiafu told Reuters on the sidelines of the conference.
COSCO halted payments to several ship owners earlier this year to force better terms, a move that threatened to taint its reputation within the international shipping community.
Wei said that the company had stopped buying ships last year because of an uncertain industry outlook.
GLOOMY OUTLOOK
The European debt crisis has made the outlook for the world economy and the shipping industry more uncertain. The World Trade Organisation has cut its 2011 trade growth forecast to 5.8 percent from 6.5 percent predicted earlier.
"The European debt crisis will be there for a long term and it will add volatility to the market from time to time," said Dong Tao, an economist at Credit Suisse.
The IMF cut its global economic growth forecast to 4 percent for both 2011 and 2012 in September from 4.3 percent and 4.5 percent, respectively.
Slowing growth comes at the same time as rising supply of vessels.
The global dirty tanker fleet, dedicated to transporting crude and fuel oil, is expected to grow 9 percent this year and 7 percent next year, ship association BIMCO has said.
This compares with an expected growth in world oil demand of 1.1 percent for this year and 1.4 percent for 2012 given by the International Energy Agency in its latest report.
Share prices of many shipping companies worldwide have tumbled in the past year amid a deteriorating earnings outlook.
COSCO Holdings, which made a net loss of 2.07 billion yuan ($325.81 million) in the third quarter, saw its share price fall about 60 percent in the past 12 months.
Won-Woo Lee, chief executive of Hanjin Shipping's container business unit, said it might be difficult to break even on all of its shipping routes next year, especially European routes, citing overcapacity.
A recovery through 2009 and 2010 came to a grinding halt this year as the European debt crisis threatened to snuff out nascent economic growth and as vessels ordered during the boom started to arrive on the market.
Participants at a global shipping industry conference in Boao, on the southern Chinese island province of Hainan, don't expect the industry to turn up again until 2014, according to an informal survey by HSBC at the event.
"This condition may last for a relatively long period of time," transportation minister Li Shenglin told the event.
China is particularly important for the shipping industry as its huge appetite for raw materials has been one of the key factors supporting rates.
The supply glut, made worse by economic woes in the United States and Europe, has pushed rates for dry bulk vessels that transport goods such as iron and coal below 2,000 on the Baltic Exchange , less than a fifth of the 2008 peak.
On the flip side, rising fuel and other costs have squeezed operators' margins. Global benchmark Brent crude LCOc1 has averaged more than $100 this year for the first time ever.
"The industry is double hit by the supply and demand imbalance and rising costs, especially fuel costs," Li said.
China COSCO Holdings Co Ltd , operator of the world's largest bulk cargo fleet and a major global container shipper, has been able to slash charter costs after successful renegotiations with ship owners, its chairman said.
"The negotiations went well. Most of the ship owners have agreed to reduce charter costs," COSCO Chairman Wei Jiafu told Reuters on the sidelines of the conference.
COSCO halted payments to several ship owners earlier this year to force better terms, a move that threatened to taint its reputation within the international shipping community.
Wei said that the company had stopped buying ships last year because of an uncertain industry outlook.
GLOOMY OUTLOOK
The European debt crisis has made the outlook for the world economy and the shipping industry more uncertain. The World Trade Organisation has cut its 2011 trade growth forecast to 5.8 percent from 6.5 percent predicted earlier.
"The European debt crisis will be there for a long term and it will add volatility to the market from time to time," said Dong Tao, an economist at Credit Suisse.
The IMF cut its global economic growth forecast to 4 percent for both 2011 and 2012 in September from 4.3 percent and 4.5 percent, respectively.
Slowing growth comes at the same time as rising supply of vessels.
The global dirty tanker fleet, dedicated to transporting crude and fuel oil, is expected to grow 9 percent this year and 7 percent next year, ship association BIMCO has said.
This compares with an expected growth in world oil demand of 1.1 percent for this year and 1.4 percent for 2012 given by the International Energy Agency in its latest report.
Share prices of many shipping companies worldwide have tumbled in the past year amid a deteriorating earnings outlook.
COSCO Holdings, which made a net loss of 2.07 billion yuan ($325.81 million) in the third quarter, saw its share price fall about 60 percent in the past 12 months.
Won-Woo Lee, chief executive of Hanjin Shipping's container business unit, said it might be difficult to break even on all of its shipping routes next year, especially European routes, citing overcapacity.