Container lines prepare for trade doldrums
Hard-pressed container lines, which have already seen charter rates sink on key trades routes between Asia and Europe and transpacific, could face further difficulties as a result of changing trade patterns.
Jon Windham, head of Asian marine transportation research at Barclay Capital, said: 'We believe 2012 will mark a sea change in global container trade flows as the average distance travelled by Chinese exports will begin to structurally decline.'
This would dent profits at container lines such as Orient Overseas Container Line, Cosco Container Lines and China Shipping Container Lines.
The decline in the distance Chinese exports travelled partly reflects the poor economic conditions in Europe and slower export growth from China.
As a result, while China's container volumes were forecast to grow by 9.5 per cent a year between 2012 and 2014, the shorter sailing distances will cut annual demand for ship capacity by 1.9 per cent, according to Windham's forecasts. 'This will likely have a negative incremental impact on industry earnings,' he said.
Northern Europe accounted for 18 per cent in value terms of mainland exports in 2011 but 24 per cent of total shipping demand from China due to the long transit time, based on Barclays Capital estimates. By comparison, North Asia accounted for 18 per cent of export value, but only 5 per cent of shipping demand.
The average distance shipped by mainland exports grew 14 per cent between 2001 and 2008 as China became the factory to the world before peaking in 2008.
The impact of the shorter sailing distances will be particularly felt this year, causing a 2.3 per cent contraction in mainland container shipping demand.
Container shipping companies dropped rates to ship a 20-foot container from China to Europe to below US$500 in early December as a result of excess ship capacity, although they rebounded last week. Freight rates from Shanghai to Europe fell by 50 per cent last year, according to the Shanghai Shipping Exchange.
Windham said while South America was driving growth in shipping demand from China, the region still only accounted for 4 per cent of Chinese exports in value terms. But this was expected to grow as South America became one of the mainland's biggest export markets.
He said the China-South America trade had the potential to reverse the trend in shorter travelling distances, 'but given the relatively small size of this trade, we do not expect overall average trade distance to expand again until after 2014.'
Tim Smith, Maersk Line's chief executive for North Asia, said the key for liner operators in the next year or two 'will be whether they have the willingness to trim capacity to match demand.' This would include idling container ships as demand fell.
So far, container ships capable of carrying about 550,000 teu (20-foot equivalent units) had been temporarily parked last month, equivalent to about 3.5 per cent of the world's container ship fleet. For comparison, ships of about 1.3 million teu were parked by early 2009 as trade collapsed after the failure of Lehman Bros.
Peter Sand, an analyst at the Baltic and International Maritime Council, said he expected the number of idled container ships would grow after the Lunar New Year as mainland exports dropped. Sand said the 550,000 teu that had so far been idled should be set against the 1.2 million teu that were delivered in 2011.
Smith said: 'The industry is still fragmented and competing on unhealthy parameters, which does not build prosperity for global trade.'