Shipping Volume has recovered but Prices Lag Behind: Mitsui OSK Chief

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(Image Courtesy: Global Trade Magazine)

The maritime shipping industry is gradually emerging from a period of struggle. Junichiro Ikeda, president of Mitsui O.S.K. Lines, recently spoke to Nikkei about the challenges and opportunities in the industry, and how the Japanese shipper sees the future of overall global trade.

Q: The shipping industry’s benchmark Baltic Dry Index last year rose as much as 70% on average from the year before. Is this a positive trend?

A: The charter rate for ships carrying iron ore for example, was on average about USD 15,000 a day in 2017. We can say it is a recovery, considering the rates in 2015 and 2016 were below USD 10,000.

Before the 2008 global financial crisis, however, the average rate was over USD 100,000. That was exceptional, but the USD 20,000 level is needed for shipping companies in general to make a profit.

Q: Has the shipping industry not fully recovered?

A: During the January-October period, container shipping volume departing from Asia increased 5% or so year-on-year for both the North American and European routes. For the South American route, the growth was more than 10%.

In addition to China actively buying liquefied natural gas, iron ore and soybeans, the rise of India and Indonesia was notable. Overall, the shipping volume has exceeded the pre-crisis level.

Q: Why are freight rates slow to pick up despite robust shipping trade?

A: For one thing, too many cargo ships are now on the sea. Until around 2011, when resource prices were booming, global shipping players ordered a large quantity of new ships in expectation of higher demand. This resulted in an excessive increase in total shipping capacity. But as the shipping market has tumbled, shippers have been avoiding ordering new ships.

Q: Before the crisis, the maritime shipping trade was growing at twice the pace of the global economy. While we see signs of recovery, is there any structural factor behind the slower growth in trade?

A: When maritime shipping volume grows more slowly than the global economy, it is in a state known as “slow trade.” But in 2017, the situation seemed to have changed from the past several years. We project that growth in shipping volume exceeded the pace of the global economy. Nonetheless, we will not see as strong an increase as when China was aggressively buying resources several years ago. The moves to set up production bases around Asia are mostly complete by now, too. For the time being, we should be wary of placing new ship orders.

Q: Will the rise of protectionism in the U.S. and other countries affect global trade?

A: It is a concern for the global economy and we should not underestimate the move. But in the end, there will be a number of products that can best enjoy economic benefits if they are mass-produced in cost-competitive locations and exported. From a long-term perspective, there will be no change in the direction to encourage economic globalisation.

Q: Singapore has become an important hub for large Japanese shipping companies. What are its advantages?

A: The growth of Southeast Asian economies has shifted the focal locations of shipping in Asia southward. Singapore has a geographical advantage for relaying freight directed to Europe and resources to China. Tax incentives for shippers are another attraction.

Q: Due to a chronic shortage of delivery drivers in Japan, transportation of goods and passengers could shift from land to sea. What’s your take on this?

A: The lack of drivers is a serious challenge for domestic logistics. Our company is working to maximise sea transport capacity by reviewing operating schedules of ferries.

(Source: Nikkei Asian Review)

Sea News, March 8