The kind of changes that will take place and who it will affect however depends on the length and magnitude of the devaluation. “In the short term, people are going to continue to monitor the situation,” Nemeth said, adding that a 3% to 4% move in the currency should not have a significant impact on the shipping space but a larger longer term deterioration in the currency could.
If this happens, likely outcomes would be an increase in export volumes from China, to the benefit of the traditional container shipping lines, with improved utilisation which could possibly translate into better rates. Other players that would be likely to benefit would be shipbuilders as relative prices drop compared to their competitors in Japan and Korea, he said.
However, the export market to China will be hit with detrimental effects on those involved in this space, especially for the bulk market. “For the bulkers they’ve already been on a painful ride and I think an extreme devaluation would make that ride even more painful moving forward,” he said.
There will also be impacts on the trend towards nearshoring and sourcing locations in general, Nemeth said. An AlixPartners study has found that there will not likely be significant impacts in the shorter term, but a longer term trend towards nearshoring and moving production out of China will most likely play out for certain industries. For example seeing apparel and retail move out of China to other locations is set to continue.
Some of these players are moving for strategic reasons such as lower price of production as well as better access to markets and unless there is a much bigger drop, along the lines of 10% or more, in the yuan, their decisions are unlikely to change, Nemeth noted.
While the truly international, asset light players like major global logistics companies would not be affected by any relocation, other more asset-based players such as container terminals and ports could face more challenging times, he said.
The former is prepared for the changes in the movement of freight and will simply be able to re-deploy resources to where they are needed more. “They’ll be able to ramp up and down pretty easily, but if you look at the more heavily asset-based logistics or transportation players they will have different challenges,” he said.
For example a dedicated bulk port will have a tougher time than a multi-use port that has the potential to re-deploy its facilities for other uses, adapt to the situation and manage the changes better. “If you’re a pure container terminal, you’re exposed to the container traffic for better or for worse and could be in a tough position … (you) will have to look at more traditional options such as cost-cutting in preparation for a longer-term play,” he said.
The lower yuan could also throw up opportunistic merger and acquisition opportunities as Chinese companies become more affordable to foreign buyers, Nemeth said. These are not likely to take place in the large state-owned sectors such as container and bulk shipping and shipbuilding, he noted.
However there is potential for tie-ups among the smaller privately-owned logistics players. “You see some consolidation going on now so reducing the price 4% for foreign companies, in theory, makes a deal that wasn’t going to happen more appealing,” he concluded.
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