Fitch Ratings: Stormy Seas ahead for Shipping amid China’s Slowdown

China’s slower growth and economic transition will pose significant risks for the shipping sector, which already faces overcapacity, weak freight rates and stretched financials, according to rating agency Fitch Ratings.

Fitch believes that these pressures will probably lead to bankruptcies among smaller unrated shippers and may drive consolidation. The impact, however, is likely to vary by segment, with dry bulk and potentially container shipping most at risk while tanker shipping is likely to fare better.

The argument is confirmed with the filing for bankruptcy protection by Japanese dry bulk shipping company Daiichi Chuo Kisen Kaisha earlier today.

China is a key player in global trade, accounting for two-thirds of global iron ore imports, 20% of world coal imports and 16% of global oil imports. Asia (primarily China) was responsible for 40% of container import volumes in 2014. China’s slowing growth will therefore significantly cut demand for shipping services, while oversupply is rife in all segments except tanker shipping. This will put further pressure on freight rates, Fitch said.

With iron ore and coal representing well over half of the seaborne dry bulk demand, dry bulk shipping is most exposed to the transition of the Chinese economy. China’s coal imports plummeted by 15% in 2014 and a further 32% year-on-year in the first eight months of 2015. Its iron ore imports were marginally down in the first eight months of this year.

Despite the increased scrapping of dry bulk vessels this year, the segment performed poorly with the Baltic Dry Index average for the year to date at its lowest in 10 years. Several small dry bulk shipping companies have filed for bankruptcy and more are likely. The companies are also adapting to harsh sector fundamentals through consolidation as shown by the potential merger of two large Chinese shipping groups – China Ocean Shipping (Group) Company (COSCO) and China Shipping (Group) Company, which are involved in various shipping segments.

Shares of the two companies remain suspended in anticipation of a key announcement. The merger is likely to cause a domino effect on existing carrier alliances and further carrier mergers in Asia, damaging industry competition, according to consultancy firm Drewry.

shipping

“Weaker data on exports and manufacturing in China and its economic transition increase uncertainty for container shipping. We expect global container demand growth to moderate to between 2% and 4% this year compared to our previous forecast of 4%-5%. The year-to-date average of the China (Export) Containerised Freight Index, which is a measure of freight rates, is down 16% compared to the same period last year. The supply/demand imbalance will be exacerbated by container shipping companies continuing to order mega-vessels. Because of their size, these vessels are largely limited to the Europe-Asia trading lane, contributing to the overcapacity,” Fitch said.

Fitch expects tanker shipping to be more resilient to China’s slowdown than other shipping segments due to better supply-demand fundamentals as a result of a more disciplined capacity growth in 2014-2015.

The stance comes as freight rates rebounded, supporting stronger financial performance of tanker shipping companies in 2014 and 1H15. The fall in oil prices has also strengthened demand despite slowing growth, with China’s oil consumption increasing 2.6% in the first eight months of this year.

Share this article

Follow World Maritime News

In Depth>

Events>

<< Sep 2019 >>
MTWTFSS
26 27 28 29 30 31 1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 1 2 3 4 5 6

Defence Safety Conference 2019

The Defence Safety Conference returns to London this October as the only event solely dedicated to enhancing safety across all aspects of defence.

read more >

Shipping Transformation Asia

Shipping Transformation Asia will provide a platform for future-focused discussion in the shipping,…

read more >

3rd MarSat Workshop

The MARSAT project wants to operationalise and standardise EO products and aims to develop…

read more >

Global Sustainable Shipping Forum 2019

The event will provide valuable insights from conference sessions, great networking opportunities and will offer…

read more >