Asia Exports Cooling Damps Outlook for Commodity Shippers: Freight Markets
Asian exports that helped power the world recovery last year are poised to grow more slowly as the region’s manufacturing rebound eases and U.S. unemployment restrains consumption after a post-recession spending spree.
Container traffic growth in Shanghai, Singapore and Hong Kong, the world’s busiest ports, has cooled since the first half of 2010. Singapore exports in 2011 may rise at a third of last year’s pace of as much as 24 percent, according to DBS Group Holdings Ltd. The island’s government joins Taiwan and South Korea in predicting smaller gains in overseas sales.
“2011 is not looking as exuberant as 2010,” said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. “The easy part of the trade upswing is over now and demand is getting tighter,” making the outlook for shipping “less bubbly,” he said.
While container-shipping companies may profit from rate increases, the export slowdown may damp growth in other Asia shipping and transport stocks, which are already underperforming Asian stock indexes. The Bloomberg Dry Ships Index fell 8 percent last year while the MSCI World Index rose 10.4 percent.
Leasing costs for capesizes, 1,000-foot-long ships hauling iron ore and coal, will drop 34 percent to average $22,000 a day this year, according to the median in a Bloomberg survey of eight fund managers and analysts. Rates were last that low in 2002.
Goldman Sachs Group Inc. analysts lowered their industry views on Asian airlines and bulk shipping companies to “neutral” last month, from an “attractive” rating. They downgraded STX Pan Ocean Co., South Korea’s biggest bulk carrier, and said lower bulker rates will hurt earnings.
They upgraded Hanjin Shipping Co., South Korea’s largest container line, to “buy” from “neutral” in late December. Hanjin Shipping said last month that it plans to raise rates by $250 per 20-foot box for trade to Europe from Asia in the first quarter.
“Bulk shipping doesn’t look good because there are concerns of oversupply,” said Lee Ki Myung, an analyst in Seoul at Shinhan BNP Paribas Asset Management Co., which oversees $28 billion. “It will be some time before the overcapacity issue is resolved. That’s why many institutional investors have sold bulk shipping and switched to container shipping.” He declined to comment on Shinhan’s holdings.
Asian exports surged last year as demand for China-made Barbie dolls and Hyundai Motor Co.’s Sonata cars recovered from the 2009 world recession. In Singapore, where non-oil exports are equivalent to more than half of an economy that grew a record 14.7 percent in 2010, Prime Minister Lee Hsien Loong expects a “weak” U.S. and Europe’s debt crisis to limit the global outlook this year.
Still, “the current recovery in the West has been very kind to Asian exports and we expect that to continue even as growth rates come down,” said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong and a former consultant to the World Bank.
Overseas shipments by Singapore companies may increase 12 percent this year, half the probable pace of 2010, according to the median estimate of 22 economists in a central bank survey published last month. In Taiwan and South Korea, exports are forecast by policy makers to grow at a third of 2010’s pace, while the International Monetary Fund said Hong Kong may see the volume of shipments halve.
DBS Group, Southeast Asia’s biggest bank by assets, predicts an 8.2 percent growth rate for Singapore’s exports, while CIMB Research Pte, a Singapore unit of Malaysia’s second- biggest banking group, forecasts as low as 8 percent.
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“Overall we see a slowdown in exports especially to the U.S. and Europe due to rising U.S. inventories and waning growth in Europe, which curbs shipments,” the cargo unit of Singapore Airlines Ltd., the world’s second-biggest carrier by market value, said in e-mailed comments to Bloomberg News.
Seoul-based Korean Air Lines Co., the world’s largest international cargo carrier, said last month demand would fall in December because of rising stockpiles of liquid-crystal display televisions, computers and MP3 players. The company also said in an e-mail it expects demand to decline “across regions.”
Memphis, Tennessee-based FedEx Corp., the second-largest U.S. package-shipping company, posted profit that trailed analysts’ estimates in the three months through November as growth slowed in international deliveries and costs rose. Since Dec. 3, 2010, the iShares Dow Jones U.S. Transportation exchange traded fund, which includes FedEx, has risen just 1.9 percent while the S&P 500 ETF is up 3.5 percent.
Air and Land
U.S. retailers’ inventories climbed to an 18-month high in September, helped by restocking that drove a 28 percent jump in Asia-Pacific carriers’ cargo traffic through October. The retailers’ stock fell 0.6 percent in October. Growth on the continent of Europe may slow to 1.8 percent this year, according to the International Monetary Fund.
About 90 percent of the volume of global trade is done by sea, while the rest of the goods are carried by air and land.
At the world’s five busiest container ports -- Shanghai, Singapore, Hong Kong, Shenzhen and Busan -- growth in the number of cargo boxes handled slowed in November from earlier in 2010.
Singapore’s container throughput rose 3.8 percent in November from a year earlier, less than a quarter of the pace in January. Container traffic in Hong Kong climbed 10.5 percent in November, less than half the pace in January, while Shenzhen’s growth slowed to a five-month low of 12.9 percent.
Container shipping lines may escape the consequences of a slowdown in trade growth: Last year’s demand surge used up existing capacity, letting them charge customers more.
Copenhagen-based A.P. Moeller-Maersk A/S, owner of the world’s biggest container line, along with 14 others, is seeking a rate increase from exporters of $400 per 40-foot box on Asia- U.S. west coast trade this year.
“There is demand out there,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “Although we’ll have to see how much of the increase is agreed with shippers, the prospects are looking good.”
An index from the Hamburg Shipbrokers’ Association reflecting charges for six types of container carriers more than doubled last year.
Container volumes may expand 11 percent this year after growing 13 percent in 2010, Jon Windham, an analyst at Barclays Capital in Hong Kong, said in a Jan. 3 Bloomberg Television interview. U.S. retail spending excluding food and gasoline is still “quite strong,” he said.
U.S. economic data have sent mixed signals. Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores, according to MasterCard Advisors’ SpendingPulse.
In contrast, confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011, the Conference Board’s confidence index showed.
Barclays Capital’s Windham says investors should avoid bulk shipping companies, which transport commodities and are expanding their fleets. The Baltic Dry Index, a measure of commodity shipping costs, dropped about 28 percent last quarter to 1,773 points. It was at 1,519 points on Jan. 7.
The Baltic Dry Index may remain at a “persistently low level” for the next six to eight quarters, said Khalid Hashim, managing director of Precious Shipping Pcl, Thailand’s second- largest shipping company.
“Forecasts all seem to point to a slowdown in global economic activity,” Khalid said. “If this materializes at the same time as the new supply of ships hits the water, it could cause the perfect storm that would keep the Baltic Dry Index lower than 1,500 points for an extended period of time.”
Freight and cargo companies may have to rely increasingly on demand from emerging countries from China to Brazil. A.P. Moeller-Maersk plans to increase investments in China and India in anticipation of emerging-market traffic growth outpacing demand on U.S. and European routes.
Sea-cargo traffic in China, Vietnam, India and other emerging markets may grow 7 percent annually until 2015 compared with a 2 percent expansion in more mature economies, according to Kim Fejfer, chief executive officer of APM Terminals, the container-terminal arm of A.P. Moeller.
For now, 60 percent of Asia’s exports are ultimately destined for the U.S., Europe and Japan.
“The rate at which trade will grow will definitely be more subdued and demand won’t be compelling,” said Alvin Liew, a Singapore-based economist at Standard Chartered Plc. “There’s still business to be done but it’s inevitable that we are in for a slower year.”
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