22 March 2019

Shipping sector sailing into calmer waters

With a recovery in freight rates and supportive government policies, China’s shipping sector appears to be turning the corner and putting the worst behind.

Media reports said last week that the transport ministry has submitted a proposal for developing the maritime shipping sector under a national strategic plan. The plan is said to be awaiting the State Council’s review and approval.

The main point of the agenda is to provide long-term solutions for boosting the marine shipping industry, including optimization of the nation’s ports and restructuring the shipping capacity. Among other proposals are strengthening the linkages between railways and marine shipping and setting up a special fund for phasing out old ships.

In fact, overcapacity is the industry’s most challenging problem. Targeting multiple sectors suffering from excessive capacity, the State Council had in October released guidelines to address the issue. Among the directives was that local governments should limit the land-use and launch of new projects by companies with low capacity utilization ratios. The move was aimed at speeding up the restructuring process and drive out the weakest enterprises.

The new government policy proposals may not have an immediate impact on the shipping industry, but could slowly guide the industry back to normal growth, observers say.

Sinotrans Shipping (00368.HK) bought four post-Panamax bulkers in October to expand its self-owned fleet of dry bulk vessels. It marked the first time in four years the company bought such vessels, a sign that the shipping firm is betting on the bottoming of the sector. Recovery of freight rates, meanwhile, is another encouraging sign.

Last week, global mining giant Rio Tinto predicted that its iron ore output capacity in Australia will increase 25 percent next year. The comments have sent the Baltic Dry Index (BDI), the gauge of bulk shipping freight rates, up nearly 23 percent since last Monday to 1,821 points.

The index has gained gradually this year and hit a two-year high of 2,146 in October, but then saw a roller coaster move and lost 30 percent in a month. Last year, the benchmark tumbled to as low as 698 after an all-time peak of 11,793 in 2008.

– Contact the writer at [email protected]



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