Maritime Market Updates

The GDP of China has slowed for the seventh straight quarter registering 7.4% in the third quarter of 2012 which was the lowest rate of growth since early 2009 and 2010 when it grew between 9 – 12%. The comparison of 7.4% is on a ‘year on year’ basis. However, between second and third quarter of 2012 GDP grew by an annualised rate of 9% which can be heartening to many. 

Most of China’s spending is on buildings, machinery and infra-structure which is primarily undertaken by State Owned Enterprises (SOE) benefiting from subsidies and government encouraged loans. Critics argue that China’s economic models are not fair by its people as interest rates which are regulated underpay the savers for their deposits. They say barriers to competition enable SOEs to overcharge consumers. 

China’s saving rate which is at approx. 51% of GDP is far greater than its investment rate and therefore does not have to rely on foreign borrowing nor foreign direct investment. The growth is financed from the resources of its own population and therefore not dependent on foreigners who could flee. However it will be difficult to sustain China’s saving rate with the population ageing and savers looking to alternative forms of investment other than bank deposits. 

On the positive side however, many Economists believe that China’s protracted slow down appear to be over. Exports have grown by 9.9% in 2012 up to September as against a growth of only 2.7% in August. Unlike in the past where rates of GDP growth were around 9 – 12%, it seems that China’s policy makers will be content with a growth of 7 – 8% over the short and medium term which will be easy to sustain. Hence China will continue to provide the base traffic out of Asia to Shipping Lines.

Faulting China’s shipping prosperity index – Is it of concern?

The Shanghai International Shipping Institute index which reflects China’s sector levels of prosperity for shipping in the third quarter declined from the 100 point neutral reading to 78. With large vessels coming on stream, supply demand imbalance has worsened with vessel utilisation falling to 70%. 

Some indicators such as port throughput have been far below prosperity levels for 10 months. The Dry bulk market was the most depressed with rates lower than costs with some small and medium carriers expected to go bankrupt. The port prosperity index in the 3rd quarter was 77.42 points falling for the first time below the 100 point prosperity level with some port operator profits dropping beyond 40%. However during the first nine months of 2012 container throughput at Ports in China increased by an acceptable 8.1% to 131 million Teu as against the previous year. Main Ports in China, such as, Shanghai, Shenzhen and Guangzhou posted only marginal increases.

China extends cabotage law

China has adopted legislation that will continue to ban foreign flag vessels transporting cargo through its coastal ports (cabotage). The new laws that will come in to effect from January 2013 will be in line with maritime code of the People’s Republic of China which was operational since 1993. Ships registered in Hong Kong, China and Taiwan are exempted from this registration.

Shipping confidence at four-year low

According to International Accountants and Shipping Advisor, Moore Stevens, the overall confidence levels in the shipping industry fell in the last three months of 2012 to its lowest level for the year. Amongst issues raised by the respondents were the surplus capacity of vessels, the glut of new buildings coming on to the market and the continuing uncertainty in the demand growth. 

In a number of responses to the survey, banks also featured “the accelerating withdrawal of banks from the ship finance market is effectively depressing ships value” said one respondent. However, the likelihood of respondents making major investments in the next 12 months remain stable on a scale of 1-10 at 5.3 which is the highest ever since the 5.6 recorded in May 2011.

Growth rate of container ships down

The growth of worlds’ containership fleet having peaked at 9.7% in 2010 is expected to drop to 7.2% this year and 7% next year. With approx. 550,000 TEU or 3.4% of the fleet idle, growth as at September is 5.1%. Approx. 216,000 TEU capacity have left the fleet with the scrapping of 118 ships. Despite slowing growth 2013 is estimated to be the biggest year for container ship deliveries which will include 48 vessels with an average capacity of over 13,500. The supply woes in the container shipping industry, is bound to continue, having an adverse impact on the profitability of shipping lines.

MD of CGM-CMA in a recent interview said that capacity was the ‘big issue’ and that nine out of 17 carriers on the Asia Europe/Mediterranean had expanded their slots in the past 12 months. He said “for an Asia-Europe string 12 ships of at least 12,000 Teu are needed and it has an outlay of at least US$ 1.4 billion. But to be competitive at least three strings are needed raising this investment level to US$ 4.2 billion”.

Sanctions affect Iran’s container vessel arrivals

Sanctions imposed by US and EU on Iran due to its nuclear program is having an adverse impact on its container vessel arrivals. Whilst during 2010 378 container vessels visited its port of Bandar Abbas it had declined to 273 in 2011 and up to September this year only 86 ships have been handled.

Meanwhile, the European Union has added a further 34 entities, mainly in Oil and Gas sector subject to asset freeze. The latest EU regulations prohibit the provision of flagging and classification services to Iranian ships, prohibit the supply of vessels designed for the transport or storage of oil and petrochemical products to Iranian entities or others transporting or storing Iranian oil or petrochemicals.

North American ports’ growth slows

During the first nine months in 2012 the five main US West Coast ports witnessed a container throughput growth of only 1% year on year. Whilst exports remained flat at 4.1 million Teus imports grew by 1.3% to 6.9 million Teus. Long Beach registered a decline of 4.4% and Los Angeles saw a growth of 5.2%.

Loading heavier containers permitted on high deck of ships

Taking into account the increase in ship sizes, Lloyds Register has permitted heavier containers to be stacked higher on deck of ships. In a statement Maersk Line said: “It is comforting to know that classification societies are moving together with rest of the business in providing solutions to transport our cargo safely even on the largest vessels afloat.”

Allowing heavier containers on deck will further facilitate the conversion of break bulk and bulk cargo in to containerised traffic. However, some experts have cautioned that effects of such carriage on the stability and the trim of a ship need to be further examined.

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), and a University of Oxford Business Alumni. He can be reached via [email protected].)