From SCDigest's On-Target e-Magazine
- Sept. 4, 2012 -
Global Supply Chain News: Global Shipping Industry a Window to Overall Economy, Sourcing Changes, as Major Container Carriers Struggle
Chinese Carriers See Sea of Red Ink, While Maersk Lines Sees Sourcing Moving Away from China
SCDigest Editorial Staff
Just as US transportation providers generally offer an accurate proxy view of America's economy, so do global carriers, especially ocean shipping firms, as to the state of the world economy.
China's two large public shipping firms reported large losses last week. China COSCO, operator of the world's largest bulk cargo fleet and also a major player in the container shipping sector, said it lost $341 million in Q2 and $764 million for the first six months of 2012 - while warning that market competition in the second half of the year might intensify from here as overcapacity dog the industry.
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Maersk's customers who ship shoes, toys and other labor-intensive goods are increasingly located in countries like Vietnam and Bangladesh, rather than China.
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The Q2 loss was a little less than what COSCO reported in Q1, thanks mostly to container shipping rates improving sharply of late over a disastrous 2011. However, "the significant increase in market freight rates in the first half of the year may not be maintained,"COSCO said in its Q2 earnings report.
Financial news outlets are saying that the losses have had a huge impact on COSCO's cash flow, and forced it to borrow money to meet higher fuel costs and other operating expenses. While in general the company should be safe because it is more than 50% owned by the Chinese government, its financial situation is limiting its ability to invest in new ships or spend money to open new markets, sources say. A major government bailout is a possibility.
As tough as the container market is right now, bulk shipping of commodities is even worse. COSCO'S bulk shipping volume fell 18% from a year earlier to 112 million tons, while revenue dropped 32%, as prices continue to plummet.
Bulk rates are down about 31% so far in 2012, based in the Baltic Dry Index.
China Shipping Container Lines Co. Ltd, another major shipping firm, also reported steep losses last week. It cited volume drops in shipments from Asia to US and Europe as being major factors, as well as rising costs for bunker fuel that it is having a hard to recapturing from shippers in terms of surcharges, especially on the bulk side of the business.
Meanwhile, Maersk Lines, the container shipping unit of A.P. Moller-Maersk, managed to swing to a profit in Q2 on the back of the improved rate environment, but said it is seeing changes in sourcing patterns.
The Danish carrier saw revenue up 30% to about $7 billion in Q2, with a profit of about $210 million compared with a year-earlier loss of $94 million.
(Global Supply Chain Article Continued Below)
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The Wall Street Journal reported last week that Soren Skou, head of Maersk Lines, said that "It's pretty clear China is losing competitiveness in a number of industries,"and that Maersk's customers who ship shoes, toys and other labor-intensive goods are increasingly located in countries like Vietnam and Bangladesh, rather than China, as wages and other costs rise there. Wage rates in China are up 13-14% so far this year, its government reports.