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Shipping leaders see no upturn for containers and bulk for two more years

Shipping leaders see no upturn for containers and bulk for two more years
A recovery for the sorry state of the shipping market seems no where in sight yet, as shipping leaders are forecasting another couple years of downturn for the dry bulk and container sectors.

With the lingering overhang of tonnage glut and slowing trade growth, shipping companies have been struggling to maintain their profitability, and threats of bankruptcy continue to loom over many loss-making owners and operators.

Marvin Zhang, chief financial officer of China Cosco Shipping Container Lines Co, noted that shipping will continue to face difficult operating environments in the next one to two years.

“Our hope is that in days going forward, the series of changes such as consolidation, mergers and new alliances, which are shaking up the industry, will put it on track for recovery and for a more sustainable future,” he said at the Capital Link China Shipping Forum held in Shanghai on Tuesday.

China Cosco Shipping Container Lines is the result of the merger between China Cosco Group and China Shipping Group, a move that Beijing hopes will help to better utilise the resources of the two giant state conglomerates.

Yang Xianxiang, ceo of SITC International Holdings, also held a bleak view of the immediate future for container shipping, as he believed a further two years of downturn will ensue.

While overall global demand growth will still increase due to unceasing consumer needs, the fundamental problem of excessive vessel capacity is limiting any meaningful upward climb for freight rates, according to Yang.

“The existing idle capacity of container shipping is about 7% of the world’s total fleet and looking at this figure, it is just not possible to see supply-demand returning to balance in two years,” Yang lamented.

In dry bulk shipping, the outlook is no better, as the sector also faces severe oversupply and weaker demand growth due to slowing Chinese imports of commodities.

“I am quite pessimistic on the outlook for dry bulk shipping in the coming few years,” said Hsu Chih-chien, chairman of Eddie Steamship Corp. Hsu, who is also chairman of Courage Marine, pointed out that he is speaking in his capacity for Eddie Steamship rather than the Hong Kong-listed Courage Marine.

“There are several reasons for the pressure on bulk shipping but one of them is the vast overcapacity of tonnage and lack of scrapping activities,” Hsu noted.

“Another main reason is that over the past 10 years China has been the main driver of growth for the bulk market, accounting for 70% of growth, but in the past few years China’s economic growth rate has slowed down,” Hsu explained, leading to softer support for bulk shipping.

John Su, group president and ceo of Erasmus Shipinvest Group, agreed that bulk shipping demand can no longer count on China like it did in the past 20 years. “The positive side is that we are almost seeing no new orders of bulk carriers, and with conversion and scrapping activities going on, these could all of a sudden bring the market back,” Su said.

The only bright spot in shipping is the tanker shipping sector, as tanker owners and operators are benefiting from high freight rates and earnings have jumped. Zhu Maijin, general manager of China Cosco Shipping Tanker Company, said the tanker shipping market is expected to remain profitable in the next one to two years, and China’s demand for oil is also anticipated to stay robust.

“In 2014, China imported 308m tonnes of oil. This year, Chinese oil imports are expected to reach 371m tonnes,” Zhu said. However, he warned that from mid-2017 and beyond, the tanker shipping market may face a slowdown as more newbuildings hit the water to upset the fragile demand-supply equilibrium.