Deceleration of Emerging Markets – Is it a Concern?
The Economist has called the slowdown of emerging markets as “the great deceleration” and posed the question as to whether the markets are temporarily on poor form, or has permanently lost its’ edge. China with an economic growth of around 7% which is far less than the double digit growth achieved in the 2000s, India around 5%, Brazil and Russia 2.5% is half of what it was during the height of the boom. Over the past decade the economies of the emerging markets increased from 38% of the world output to 50%, measured at purchasing power parity (PPP). China’s per person GDP measured at PPP was 8% of America’s and now it is 18%. It is evident that China is in the midst of a shift from an export lead growth to a consumption based model. Unlike in the past low wage cost has become less important due to labour representing only a small part of the overall cost of production. The business model of increase consumption taking place in the West with production being out sourced to the East is certainly under threat. Does it mean that providers of shipping logistical services in Asia should re-visit investments in capacity growth?
Shipping Lines Mitigate Losses during 2nd Quarter
During the 2nd quarter 2013 Neptune Orient Lines Group reported a net loss of US$ 35 million compared with a net loss of US$ 118 million in the 2nd quarter of 2012. Quarterly revenue was USD 2.06 billion which is a reduction of 12% from USD 2.33 billion in the same quarter of 2012. Revenue from container shipping business APL was USD 1.73 billion, down 13% year-over-year. “Market conditions have worsened in the 2nd quarter of this year compared to a year before”, said NOL Group’s CEO in a written statement. In the 1st half of the year, APL’s average revenue per 40’ container declined 7% year-over-year while efficiency improvements helped reduce the cost of sales per FEU by 8%. Meanwhile, Hanjin Shipping reported a net loss of 80.4 billion WON (about USD 72.3 million) in the 2nd quarter which is as against a net loss of 1.2 billion WON a year earlier, in this same quarter. Container revenue increased 6.8% in this 2nd quarter compared to the 1st quarter. Hapag-Lloyd however, reported a profit of about USD 27.8 million during the 2nd quarter of 2013 compared with a net loss of EURO 7.3 million during this same period. The average freight rate of USD 1.499 / 20’ equivalent unit was down from last year’s figure of USD 1.594 per TEU. In the 1st six months of 2012 the carrier posted a net loss of EURO 72.7 million compared with a net loss of EURO 139.7 million in the 1st half of last year.
Shipping lines are expected to increase revenue as they enter into the peak season during the 3rd quarter and will focus on maximising profit margins through freight restoration and continuous cost reduction.
Shipping Lines announce further rate increase
Shipping Lines have announced further rise of rates effective 1st September following the sizeable rate increase on 1st August. The all in spot rates since August 1st has lost some ground with the latest Shanghai Containerised Freight Index shedding 1.8%, as China/North Europe component dropped 4.3% or US$ 65 per teu to US$ 1436 per teu. However, this is above the rate of US$ 1360 per teu which prevailed in late July. Hong Kong’s OOCL has advised a rate increase of US$ 500 per teu effective September 1st from Asia to North Europe and similarly Hapag Lloyd plans to raise Asia-Europe rates by $ 500 per teu on September 2nd. NYK, Hanjin Shipping, Mediterranean Shipping Co. is also planning for a US$ 500 per teu increase at the beginning of September.
World Wide Container Volume Growth Slows Down
As reported by Container Traders Statistics (CTS) between January–June 2013, global full TEU volumes grew by only 0.4% year-on-year to 65.8 million TEU. Whilst inter-regional trade rose by 1.8% to 47.4 million TEU, those within the continents fell by 3.6% on average. During the aforesaid period, exports from the Middle East and Indian Sub-continent contracted by 7.9% year-on-year to 3.3 million.
No Peak Season for North Europe Container Ports
Laden container imports to North Europe ports during this year is expected to decline by 8.9% as against last year’s volume of 12.2 million TEU, based on a report published by Global Port Tracker. The report says that slowdown in China’s growth rate was affecting exports as much as the recession in the key Europe markets which has negated any hope of a peak season, which will have an adverse affect on rate restoration programmes launched by shipping lines.
Piracy in south East Asia declines
As reported by the Regional Cooperation Agreement on combating piracy and armed robbery against ships in Asia, pirate activity in South-East Asia during the first half of 2013 has dropped. The report indicates 57 incidents comprising of 54 successful attacks and 03 attempted attacks during the period January to June this year compared to 64 actual and attempted crimes reports during the same period in 2012. Of the 57 incidents, 13 were category 02 or moderately significant, 20 of category 03 or mildly significant, 21 were petty thefts and 03 were attempted attacks. The improvement during this year was witnessed in Bangladesh, India, Straits of Malacca and Singapore.
Shipping Line to provide Cabotage services within India
Mumbai based Shreya Shipping will commence two Indian Cabotage services, one operating along the West Coast and another one between Cochin and the East Coast. The itineraries are:
West Coast – Mundra, Nhava Sheva, Hazira and back to Mundra.
Under East Coast – Cochin, Chennai, Vishnapatnam, Kolkata and back to Cochin.
It will be interesting to monitor the implications of these services on transhipment ports.
The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a NORAD /JICA Fellow.