Market can’t get any worse – China lines
Ocean carriers should seek rational, creative and cooperative development to shake off losses, readjust their fleet and regain a solid ground in preparation for a recovery in the market, according to Chinese Shipowners’ Association head Zhang Shouguo.
“The shipping doldrums seems to have hit bottom,” said the vice-president and secretary-general of the Beijing-based association. “This year’s situation couldn’t be worse, although it may still be quite serious.”
The term “rational development” largely refers to optimising the capacity structure to lessen worsening overcapacity and find a balance by retiring old and pollution-heavy vessels and not blindly following the expansion of other lines, said Zhang.
By creative development, he wanted shipping companies to improve risk and cost control systems, and upgrade services and management.
More importantly in the current period, cooperation among the carriers was necessary not only in shouldering social responsibility but also in avoiding malignant competition. Communication with upper and lower reaches of the logistic chain could reduce risks and prepare for the future. Capacity adjustment and restructuring could also be realised through cooperation and alliance mechanisms.
After a lacklustre performance in 2011, the shipping industry in China barely survived the global slowdown in 2012, hammered by rising fuel and falling rates. Among 14 of the Chinese mainland listed shipping enterprises, nine reported losses in the first three quarters, with Cosco leading the way again after 2011.
Although their total revenue managed slight increases, a whole industry loss seems inevitable for the whole of 2012.
“The enterprises are confronting even worse difficulties this year than last year, and it is hard for carriers to make money under current shipping rates,” said Zhang.
Cosco, China Shipping Container Line and Changjiang Oil Transport, all share-listing carriers with consecutive losses, have failed to make ends meet so far.
Cosco said it was issuing overseas bonds in US dollar denomination through its overseas branches. Cosco Shipping (Hong Kong) raised US$89.6 million from North European Bank on November 20. CSCL also noted on November 19 that it had raised $358.6 million by selling some container vessels owned by its branch companies.
Sluggish industrial indices offer testament to the market pessimism. Industrial analysts at the Shanghai International Shipping Institute, a compiler of Chinese mainland shipping indices, concluded below-average indices for the third quarter of 2012 for the first time in two years. The China Shipping Prosperity Index was only 78.17 points, down 16.37 from the previous quarter. The index for Chinese ports was 97.42 points, down 20.72 percent from the first quarter. The situation in the last quarter of 2012 is believed to have improved, but only slightly.
Information from the Shanghai International Port (Group) indicated that in the first nine months of 2012 the number of idle vessels in Shanghai only saw a slight increase. Data from the management committee of the Shanghai Comprehensive Bonded Zone show idle container vessels at Yangshan Port Area rose by 1.5 percent in the first three quarters and 5.5 percent at Waigaoqiao Port Area.
While the BDI (Baltic Dry Index) averaged around 1,400 points last year, it lowered to an average of less than 1,000 most of the time. The recent BDI rebound in November was seasonal because of Christmas, said industry analyst Du Jianping from Zhongyin International.
It is unlikely there will be a rise in rates with the start of 2013 as there is still overcapacity on key ocean routes. Many of the carriers do not see boosting bottom lines from rates after paying for fuel and crew salaries, not to mention port surcharges, depreciation and bank interests.
“Overcapacity is the deep-rooted cause of weak shipping rates,” said Zhang.
In 2012, the retirement and dismantling of old vessels was speeded up. According to the Chinese Shipowners’ Association, vessels with a total of 30 million dwt were retired in the first 10 months of 2012 worldwide and for the whole of 2012 this could reach 35 million dwt, compared with 25 million dwt in 2011.
However, the capacity increase in 2012 was estimated at above 100 million dwt, which means a net increase of about 65 million dwt. By the end of October container capacity increased to 16.67 million TEUs from 15.91 million boxes.
“Increases in new vessel deliveries and their growing size will keep pressuring the shipping market and it will take time to fundamentally tilt the unfavourable imbalance in supply and demand towards carriers,” said Zhang. The fleet overhang will erode the limited increases in cargo traffic even with a gradual economic recovery, he added.
Information from other departments indicates cargo flow is expected to grow and speed up this year. Minister of Commerce Chen Deming, at a forum on November 29 in Beijing, said: “Initial forecasts indicate that international trade in 2013 will be slightly better than in 2012.”
Trade with emerging markets such as South America, Africa and Central Asia will fare better, said Cao Yuanzheng, chief economist of the Bank of China.
Cao added that China’s economy was expected to arrest its seven-quarter slowdown in the last quarter of 2012 and that would be sustained in 2013.