SINGAPORE, July 29 (Xinhua) -- With low trade volume growth and greater capacity addition expected in the second half of the year, Asia's shipping sector will continue to face a difficult operating environment although experts see a silver lining for dry- bulk shipping.
Demand for Asian goods has been weak so far this year, with European imports down 2 percent year-on-year in first quarter, partially offsetting a 6.5 percent increase in imports to the U.S. West Coast.
Under such conditions, average spot rates on Asia-Europe trades had fallen 55 percent in second quarter, and even the freight rates of trans-Pacific lanes were off 15 percent on year, as the liner companies had to grapple with the knock-on effect of lower volume growth and greater capacity addition.
In the past six months, a structural overcapacity of container shipping and irrational competition among liners had forced the industry to dump prices even in the face of losses.
Weak demand growth should have thrown the gauntlet at the container shipping industry to respond by properly containing capacity deployment. But no carrier wanted to make the first move to withdraw capacity, for fear of handing customer accounts on a silver platter to competitors.
As market-share goals are still very important and carriers are extremely keen to retain their key customer accounts, industry competition remains intense and this has caused spot rates to weaken quickly so far this year.
For the rest of the year, there seem to be no turnaround in sight. CIMB Research forecast flat European imports and just 3 percent growth in U.S. imports for the full year.
While the latest International Monetary Fund forecasts for global Gross Domestic Product suggest that growth should accelerate from 3.1 percent in 2013 to 3.8 percent in 2014, which means there should be stronger container trade demand growth of 6 percent to 7 percent in 2014 and 2015, CIMB pointed out 6 percent to 7 percent annual trade growth is still weak relative to the double digits seen in the days before global financial crisis in 2008.
The outlook of freight rates will depend very much on the behavior of the individual liner companies. CIMB Research said that industry players will need to exercise collective discipline up to the extent of reducing capacity deployment on a global basis, instead of just relying on piecemeal sailing omissions to rise to the challenge.
Only if this happens can the sector hopefully expect more sustainable spot rate increases towards later this year and early next year, the CIMB said.
Among the doom and gloom, however, the forces of supply and demand appear to be more balanced for dry bulk segment, which may support the future rates in this segment.
The new build dry bulk tonnage is starting to slow appreciably. At the same time, demand for iron ore and coal shipments appears to be accelerating albeit off lower than trend levels.
For a long time seen as the "bad boy" of the broader shipping industry, dry bulk shipping market fundamentals stood out in stark contrast to its container liner peers during the last quarter.
The world's dry bulk fleet has only increased in size by 3 percent year-to-date, with demand for the cargoes of iron ore and steel from China expanding at a far more rapid pace stimulated by the lower price of imported ore and the China's very low port-head stockpiles.
Hence, Credit Suisse Research believed that the market is underestimating the improved performances expected to characterize most of the dry bulk shipping companies later this year.
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