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LIKE
the chicken and the egg story, one is left
wondering how the Shanghai rate plunge all
began: Was it the lack of European demand
or the flood of mega-ships careening down
the slipways of the Far East.
While
causes are open to debate there is wide
agreement on the result - the shipping sector
has suffered another tepid "high season"
of slow or no growth.
But
doctors differ. China's trade figures are
not all doom and gloom, says economist Julian
Evans-Pritchard at London's Capital Economics
Ltd. He says the mainland's trade is healthier
than headlines suggest, and even called
it "quite healthy" in volume terms.
"Trade
growth weakened further last month but there
are good reasons to think that the outlook
is brighter than many believe," said
Mr Evans-Pritchard.
According
to his lights, the apparent weakness is
misleading. "For a start, the return
to negative export growth over the last
couple of months has more to do with what
happened a year ago than the current health
of exports - shipments strengthened markedly
in the second half of 2014, resulting in
a less flattering base for comparison, which
has dragged down year-on-year growth.
"When
looked at in seasonally adjusted level terms,
today's data look less alarming and are
still consistent with both exports and imports
having partially recovered since the start
of the year, when global trade was notably
weak.
"Another
problem is that the recent deepening of
global commodity price deflation, which
continued in August, is weighing on the
headline trade figures, which do not take
into account changes in import and export
prices," he said.
But
reflecting the majority view, Taiwan's Jih
Sun Securities Investment Consulting Co
in the Taipei Times spoke for all of shipping
even if its research note confined itself
to Taiwan and its carriers, Evergreen and
Yang Ming.
Most
liners felt pressured by the cost of idling
10,000 TEU ships, the brokerage said. But
given the circumstances, what more could
be done.
Supply
on the Asia-Europe route had outpaced the
average weekly demand of 260,000 TEU by
25 per cent, said Jih Sun analyst Chang
Li-chun.
Mr
Chang said the oversupply comes after shipping
companies overestimated market demand for
marine cargo in the first quarter, leading
to precipitous drops in average freight
rates.
The
Shanghai Containerised Freight Index (SCFI),
which tracks spot rates of container shipping
containers from Shanghai to 15 major destinations,
stood at 719 points on Wednesday, down 4.1
per cent from the previous month and 36.6
per cent from a year earlier, according
to Jih Sun's tallies.
So
far this quarter, the SCFI averaged 703
points after rebounding from a historic
low of 549 points in late July, but the
figure remains 30.1 per cent lower than
that in the first quarter.
In
response to the declining rates, shipping
companies have reassigned their larger ships
of more than 8,000 TEU to replace 6,000
TEU vessels operating on the US route, a
move likely to worsen the cutthroat price
competition that has taken hold in the sector
so far this quarter, he said.
Mr
Chang said that the forecast for the global
shipping sector is beset with oversupply.
His forecast that cargo demand growth would
be three per cent for the industry this
year, while an increase in shipping capacity
is anticipated to reach eight per cent for
the year.
Mr
Chang said that he is expecting the SCFI
to return to the 920-point benchmark next
year, but the index has little chance of
returning to the 1,071 point record high
seen last year.
He
said that freight operators with long-term
contracts are likely to be less affected
by the slump than those without such agreements.
In
the first half, Yang Ming reported net profit
of TWD212.67 million, or TWD$0.09 per share,
while Evergreen Marine posted a net profit
of TWD$1.81 billion (US$6.48 million), or
TWD$0.39 per share.
Even
low fuel prices make spot-price increases
difficult, as carriers face battle to redress
the supply-demand imbalance
The
global spot market has made for bleak reading
for carriers. While in recent weeks have
brought most welcome rises in freight rates
on some trades at least, these to be at
the opening of the month when general rate
increases rain down and hold the line until
shippers finds better deals with carriers
anxious to fill their ships and the effort
to raise the rate collapses.
There
are things to cheer about. Slot costs are
down with the low bunker prices and the
mega ships with their vast number of slots
have efficient fuel saving engines and static
manning scales.
Downside
of all this upside is that carriers find
it hard to justify rate increases - much
less make them stick,
In
mid-June, the SCFI, a weighted average of
all-in spot rates across 15 trades out of
Shanghai, fell to its lowest level yet,
556.72 points. Despite climbing to 666.02
points by the second week of July, it is
still down nearly 40 per cent year on year,
when it stood at 1,100.15. Meanwhile, the
average weekly index for the year thus far
of 728.75 is a little less than 33 per cent
lower than the 1084.76 points average recorded
at the same stage of 2014.
Asia-Europe
carriers failed to move the market with
yet another round of general rate increases
at the start of June, but with mid-month
rates slipping $205 per TEU. "That
level was so low that once surcharges were
removed, including bunker adjustment factors,
lines were in effect paying their customers
to move cargo," said London's Maritime
Research analysts. "Rates had fallen
below zero."
Carriers
cut capacity in July at the start of the
peak season. At first the market looked
ready to accept GRIs, helping to push up
rates by 60 per cent in a fortnight to $879
per TEU. But not for long with rates slipping
once more to $699 per TEU.
Ditto
Asia-Med. There, following a successful
round of GRIs at the start of July in which
rates rose to $941 per TEU, rates fell to
$737 per TEU by mid-month.
But
let us not forget Mr Evans-Pritchard at
London's Capital Economics, who sees a silver
lining in Mr Chang's dark clouds and remember
that the worst is not the surest - just
the most scarifying.
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