Monday, 19 August 2013 00:00
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Deceleration of emerging markets – is it a concern?
The Economist has called the slowdown of emerging markets “the great deceleration” and posed the question as to whether the markets are temporarily in poor form or have permanently lost their edge. China, has an economic growth of around 7%, which is far less than the double digit growth achieved in the 2000s, India around 5%, and Brazil and Russia 2.5%, all of which is half of what they were during the height of the boom.
Over the past decade, the economies of the emerging markets increased from 38% of the world output to 50%, measured at purchasing power parity (PPP). China’s per person GDP measured at PPP was 8% of America’s and now, it is 18%. It is evident that China is in the midst of a shift from an export-led growth to a consumption based model.
Unlike in the past, low wage cost has become less important due to labour representing only a small part of the overall cost of production. The business model of increasing consumption taking place in the West with production being outsourced to the East is certainly under threat. Does it mean that providers of shipping logistical services in Asia should re-visit investments in capacity growth?
Shipping lines mitigate losses during Q2
During the second quarter of 2013, Neptune Orient Lines Group reported a net loss of US$ 35 million, compared with a net loss of US$ 118 million in the second quarter of 2012. Quarterly revenue was US$ 2.06 billion, which is a reduction of 12% from US$ 2.33 billion in the same quarter in 2012. Revenue from container shipping business APL was US$ 1.73 billion, down 13% year-over-year.
“Market conditions have worsened in the second quarter of this year compared to a year before,” said NOL Group’s CEO in a written statement. In the first half of the year, APL’s average revenue per 40 foot container declined 7% year-over-year while efficiency improvements helped reduce the cost of sales per FEU by 8%.
Meanwhile, Hanjin Shipping reported a net loss of 80.4 billion won (about US$ 72.3 million) in the second quarter, against a net loss of 1.2 billion won a year earlier in the same quarter. Container revenue increased by 6.8% in the second quarter, in comparison to the first quarter.
Hapag-Lloyd, however, reported a profit of about US$ 27.8 million during the second quarter of 2013, compared with a net loss of 7.3 million euros during the same period last year. The average freight rate of US$ 1.499/20’ per equivalent unit was down from last year’s figure of US$ 1.594 per TEU. In the first six months of 2013, the carrier posted a net loss of 72.7 million euros compared with a net loss of 139.7 million euros in the first half of last year.
Shipping lines are expected to increase revenue as they enter the peak season during the third quarter and will focus on maximising profit margins through freight restoration and continuous cost reduction.
Shipping lines announce further rate increase
Shipping lines have announced the further rise of rates effective 1 September following the sizeable rate increase on 1 August. The all in spot rates since 1 August have lost some ground with the latest Shanghai Containerised Freight Index shedding 1.8%, as the China/North Europe component dropped 4.3% or US$ 65 per TEU to US$ 1,436 per TEU.
However, this is above the rate of US$ 1,360 per TEU which prevailed in late July. Hong Kong’s OOCL has advised a rate increase of US$ 500 per TEU effective 1 September from Asia to North Europe, and similarly, Hapag Lloyd plans to raise Asia-Europe rates by $ 500 per TEU on 2 September. NYK, Hanjin Shipping and Mediterranean Shipping Co. are also planning for a US$ 500 per TEU increase at the beginning of September.
Worldwide container volume growth slows down
As reported by Container Traders Statistics (CTS), between January-June 2013, global full TEU volumes grew by only 0.4% year-on-year to 65.8 million TEUs. Whilst inter-regional trade rose by 1.8% to 47.4 million TEUs, those within the continents fell by 3.6% on average. During the aforesaid period, exports from the Middle East and Indian subcontinent contracted by 7.9% year-on-year to 3.3 million.
No peak season for North Europe container ports
Laden container imports to North European ports during this year are expected to decline by 8.9% as against last year’s volume of 12.2 million TEUs, based on a report published by Global Port Tracker. The report says that the slowdown in China’s growth rate was affecting exports as much as the recession in the key European markets which have negated any hope of a peak season, which in turn will have an adverse affect on rate restoration programs launched by shipping lines.
Piracy in South East Asia declines
As reported by the Regional Cooperation Agreement on combating piracy and armed robbery against ships in Asia, pirate activity in Southeast Asia during the first half of 2013 has dropped. The report indicates 57 incidents comprising of 54 successful attacks and three attempted attacks during the period of January to June this year, compared to 64 actual and attempted crimes reports during the same period in 2012.
Of the 57 incidents, 13 were category two or moderately significant, 20 were category three or mildly significant, 21 were petty thefts and three were attempted attacks. The improvement during this year was witnessed in Bangladesh, India, Straits of Malacca and Singapore.
Shipping line to provide cabotage services within India
Mumbai based Shreya Shipping will commence two Indian cabotage services, one operating along the West Coast and another one between Cochin and the East Coast. The itineraries are: West Coast – Mundra, Nhava Sheva, Hazira and back to Mundra. Under East Coast – Cochin, Chennai, Vishnapatnam, Kolkata and back to Cochin. It will be interesting to monitor the implications of these services on transhipment ports.
(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumnus. He is also a NORAD/JICA Fellow.)
