High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
“I fear the future two-to-three years will still remain in a downtrend,” Wei Jiafu, Chairman of China Ocean Shipping Group Co., said yesterday at a conference in Xiamen, China. “Many people don’t have confidence.”
Operators of vessels used to carry commodities, containers and oil are all contending with a glut and an economic slowdown that has sapped rates. The Baltic Dry Index, a benchmark for commodities-shipment charges, has fallen 60 percent in the past year, while container lines are cutting Asia-Europe sailings because of a demand slump.
“In the coming two years, it’s unlikely that the world shipping sector will bottom out,” said Xu Lirong, general manager of China Shipping Group Co., the country’s No. 2 shipping group. Companies should increase cooperation to help ease the slump, he said.
China Shipping’s listed units China Shipping Container Lines Co. and China Shipping Development Co. both had losses in the first half. The container-shipping company has fallen 7.9 percent this year in Hong Kong trading, while tanker arm Development has tumbled 31 percent.
Cosco Group’s main unit China Cosco Holdings Co. fell 4 percent to close at HK$3.12 in Hong Kong yesterday. It’s dropped 18 percent this year.
The unit lost 4.87 billion yuan ($773 million) in the six months ended June, its third half-year loss in a row. Wei, who’s the unit’s chairman and chief executive officer, has pledged to waive his salary until the losses end.
Cosco may follow A.P. Moeller-Maersk A/S, the world’s largest container-ship operator, by investing in areas outside of shipping, Wei said at the conference. The group is looking for “treasure” that would complement its sea-cargo businesses and strengthen the company, he said. An oil division has previously helped Maersk withstand losses at its container- shipping arm, he said.
Container lines have combined operations on Asia-Europe routes after price wars caused industrywide losses. Still, rates have fallen close to unprofitable levels because of demand slump. Shipments plunge 13 percent from a year earlier in July, according to Kuehne & Nagel International AG, the world’s biggest organizer of sea-cargo shipments.
Trans-Pacific routes have avoided the worst of the slump because of economic growth in the U.S. and a housing market rebound. Mediterranean Shipping Co. has this month deployed a 13,800-container vessel on a U.S. route. It will be the largest ship to serve a port in the country.
Demand for dry-bulk ships has cooled as China’s economic slowdown saps imports of commodities. The nation’s coal imports dropped 0.7 percent from a year earlier in August and by 16 percent from July, according to a report dated Sept. 19 on the Qinhuangdao Seaborne Coal Market website.
The country may import 672 million tons of iron ore this year compared with an earlier forecast of 699 million tons, Australia’s Bureau of Resources and Energy Economics said this week. Australia is the biggest exporter of the steelmaking ingredient and China is the largest buyer.
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