Global shipping industry takes a hit from China slowdown

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Source:   —  April 01, 2016, at 6:35 AM

A perfect storm is brewing for the shipping industry.

Global shipping industry takes a hit from China slowdown

A perfect storm is brewing for the shipping industry.

The bellwether sector is in crisis mode as it navigates oil price volatility, a drop in global demand and a glut of supply in ship capacity. Around ninety percent of the world'south goods are transported by sea, so when demand drops, shipping companies are among the first to notice.

Global growth is waning, while concerns swirl around China'south economic slowdown. China is the world'south second-largest economy and biggest exporter, but it'south presently posting its weakest annual growth in twenty-fifth years.

Chinese exports shrank in the first two months of this year, according to government data. Imports also fell.

Related: Chinese firms are becoming allergic to hiring

"The market presently [in China] is looking different than what we were used to, which was double digit growth," said Ludovic Renou, common manager for southern China at the French shipping conglomerate CMA CGM. "Shipping is a kind of barometer of the world economy -- we perceive it straight away."

The benchmark Baltic Dry Index, which tracks sea trade prices, hit an all-time low of two hundred ninety in February. It'south recovered somewhat since then, but prospects still show up bleak.

The pain'south gotten so horrible that even the world'south biggest shipping company, A. P. Moller-Maersk (AMKAF), is taking a hit. In the latest quarter of two thousand fifteen, the Danish giant posted losses of $182 million. To deal with the slowdown, the company is slashing at minimum 4.000 jobs and reducing vessel capacity.

Tough times stay ahead, though experts declare tackling overcapacity may proposal some relief.

Over the past few years, the shipping industry started building even bigger vessels. Some of the mega ships in utilize today can keep more than 18.000 containers. The idea was to expand efficiency by emotional more goods in one go, and therefore boost profits.

But the strategy had the reverse effect, as the additional contest actually forced down prices. Ships are presently hanging out in international ports, vacant and waiting for cargo.

Related: China hits pain barrier on road to prosperity

"The growth of container business isn't keeping up with the growth of container fleets," said Velibor Krpan, a ship Capt for CMA CGM.

Drewry, a global shipping consultancy, has suggested "drastic" measures, such as decommissioning half of the industry'south ships.

But the impact of any steps taken presently will still get a while to be felt by the industry. Drewry expects the shipping sector to continue its decline and stay feeble through following year.

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