China's container fleet faces collective losses

The ongoing European debt crisis is exerting an impact on China’s container export market. Zhang Hong, president of the Shanghai Shipping Exchange, said that at the beginning of this year, the container freight rate from Shanghai to Europe was US$1,460/TEU, but it has dropped to US$560/TEU. Based on this calculation, the year-on-year decline exceeds 60%; Zhang Denghui, assistant to general manager of China Shipping Group, also stated that at this extreme time, the container freight rates from Shanghai to Europe had fallen to US$400/TEU, which could not cover the cost; “This year's situation Worse than in 2009, the domestic container fleet is likely to face a collective loss situation."

In fact, in the first three quarters of this year, China’s two major container shipping companies, China Ocean Shipping and China Shipping Container Lines Co., Ltd., lost 4.77 billion yuan and 1.58 billion yuan, respectively, and ranked first in the losses of listed A-share companies. The reason why the container freight rate plunged was not only affected by the European debt crisis and the decline in export expectations. The industry believes that another major cause is excess capacity. "It is expected that the global volume of containers this year will increase by 4%, while capacity will increase by 14%," said Liu Bin, director of the World Economic Research Institute at Dalian Maritime University.

However, the biggest contributor to excess capacity is not China's shipping companies, but offshore shipping giants. Relevant statistics show that although China COSCO and China Shipping have entered the world's top ten container liner companies, they only have about 7% of the global container shipping capacity. The total amount of containers produced by China accounts for roughly 20% of the world's total. This means that most of the international container shipping in China is undertaken by foreign companies. According to Su Husheng, secretary general of the China Transportation Association, China's international trade has experienced a surplus in recent years, but this surplus is only a trade surplus of goods. In the field of service trade, China has always been in a deficit situation. Transportation services are the biggest deficit in service trade. In 2009, China’s transportation service deficit reached 23 billion U.S. dollars.

Judging from the current situation, the capacity of some international shipping giants has not been effectively controlled. For example, Maersk, the world's largest shipping company, announced earlier this year that it had ordered 10 of the largest 18,000 TEU container ships to date, and later the company launched a new service called “Daily Maersk” on the Asia-Europe route. The capacity and the high point rate attract customers. This hard-soft measure is believed to trigger a big reshuffle in the industry. Some weaker shipping companies will be completely eliminated.