China’s Shipping Industry Sails Into Strong Earnings
(Beijing) — China’s shipping industry seems to be recovering from last year’s dry spell following vessel capacity adjustments and a hike in global trade activity.
Some Chinese shipping companies that lost money in 2016 reported substantial growth in first-quarter net earnings.
The nation’s publicly listed shipping companies reported combined net profits of 1.6 billion yuan ($232 million) in the first quarter after losing a total 5.4 billion yuan in 2016, according to an Industrial Securities report.
Shanghai- and Hong Kong-listed container carrier and port operator COSCO Shipping Holdings Co. Ltd., a subsidiary of China COSCO Shipping Corp. Ltd., saw net profit attributable to shareholders rise to 270 million yuan in the first three months of this year after losing 4.5 billion yuan in the same period in 2016.
A sister company, multipurpose vessel operator COSCO Shipping Specialized Carriers Co. Ltd., reported an elevenfold increase in first-quarter income to 11 million yuan. Last year, the company reported a 50 million yuan profit, down 65% from 2015.
Supply and demand improvements contributed to a first-quarter rebound affecting the entire industry, said Xu Jianhua, a transport and logistics professor at Shanghai Maritime University.
Companies have in the past year reduced the excess carrier tonnage resulting from a shipbuilding spree that began in 2011and ended in late 2015 last year.
Shipyard orders rose sharply for several years on overly optimistic estimates of global trade development, Xu said. The industry was then stuck with excess capacity after that optimism proved unfounded.
Also contributing to overcapacity was a push for larger vessels in the runup to completion of a Panama Canal project, said Sun Wentao, a shipping analyst with the credit rating agency China Bond Rating Co. Ltd. The waterway was expanded between 2007 and last year, doubling its capacity for shipping.
Industry players often take a chance based on long-range demand forecasts whenever placing new-build orders with shipyards, Sun said, adding that building a large container ship, for example, can take up to three years.
Xu said that new-ship orders globally declined last year. The total capacity of all vessels still on order at the end of 2016 equaled a significantly low 13% of the industry’s current operating capacity, he said.
The latest business lift for Chinese shipping companies is set against the backdrop of a transformation for the global ocean freight carrier industry.
The transformation was underscored in April when four alliances of worldwide shipping companies consolidated to form three alliances. Shipping alliance members can share container vessels, port docking rights and other resources to help balance supply and demand.
On the industry’s demand side, shipping companies have benefited from not only the rebound for Chinese imports and exports, the Industrial Securities report said, but also improved global trade.
The World Bank estimated global trade volume expanded at a relatively weak rate of 2.5% last year but should rise to 3.6% in 2017.
Shipping companies are preparing for rising demand. The container shipping fleet, the ocean transportation mode handling most of the world’s traded goods, is expected to expand 3.1% this year, up from around 1.1% last year, according to trade association The Baltic and International Maritime Council.
But Sun said the industry’s future remains uncertain, noting that the Baltic Dry Index (BDI), which tracks bulk goods shipping and trade, has been volatile lately. BDI hit a peak in November, fell sharply in February and picked up a month later.
Contact reporter Coco Feng (email@example.com)
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