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Maritime Logistics Professional

Scary stuff from the experts, but 'wait and see' is the best advice

Posted to Far East Maritime (by on April 13, 2012

This year will see the weakest Chinese growth rate since 2001, is the grim prediction from HSBC’s aptly named chief economist Stephen King.

Container shipping lines, and their bulk carrying counterparts, are being squeezed from both sides of their balance sheets. The top lines are throttled by excess capacity and poor freight rate levels, while the bottom lines are hammered by rising fuel costs.

Rates have begun to improve recently, but whether the upward trend will continue is debatable. As pointed out a couple of days ago the temptation to bring idle capacity back online may prove too hard to resist, pushing rates back down.

Fuel may fall as demand drops off, but its price is driven by so many unconnected factors that it would be insane to base any cost predictions on a decreasing oil price.

Poor capacity management aside, the falling orders from the developed US and Europe markets are having a serious impact on container carriers. Production in China factories fell for the third consecutive quarter between January and March. HSBC reckons only during the depths of the global financial crisis in Q4 2008 and Q1 2009 was the factory output lower. New orders fell in Q1 at the sharpest rate in the past 12 quarters.

So there is not much good news for shipping lines at the moment. However, growth in the global economy is expected to pick up in the second half, and we have even begun to hear the feint murmurings of a “possible peak season” this year.

That would be nice. The container shipping industry may have always been cyclical but at least before the financial crisis every year had a peak and a slack season that one could set the calendar by.

Making any kind of extended prediction in the current environment means raising your reputation up a flagpole and hoping someone salutes. Of course, it could also give you a swift hoist up the petard.

Asia’s economies have remained relatively robust through the past few years of economic uncertainty. That is helpful for trade in the region, but for carriers with large vessels looking at long-haul routes, intra-Asia isn’t much good.

The US is slowly improving and if transpacific lines can secure decent contract rates for the year, the trade lane is expected to be profitable.

Europe, however, is the great uncertainty. If the sovereign debt crisis in Europe worsens and more countries are forced to the brink, Asia-Europe will be a very quiet trade lane. It also happens to be where most of the mega container ships are headed.

About the best advice that can be gleaned from endless reports and studies by economists, analysts and other highly educated market and industry watchers seems to be: Wait and see.

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