01 October 2018
Your weekly briefing
Lloyd’s List is in Singapore this week where we held a hugely successful Asia Pacific Shipping Awards and have been taking the temperature of the maritime energy supply chain inside the industry’s biennial bunker bash, Sibcon. In between the meetings, receptions and frankly unhealthy amount of pork katsu and chilli noodles, Richard Mead, Lloyd's List, Managing Editor was invited as a guest spot on the BBC’s World Business Report to talk trade war tariffs and rising bunker costs for shipping.
Here are his top five things that he spoke to them about...
The impact of the trade conflict between the world’s two largest economies has so far, at least, proved to have a limited impact, but there are serious concerns that the tariffs and retaliatory measures could alter trade flows and we may begin to see long-term realignment of global markets. The US tariffs on China in place so far — primarily the most recent 10% levies on $200bn of Chinese imports — would affect approximately 6.4m teu, making up 58% of the trade from China to the US based on 2017 statistics, data from Seabury Consulting showed. The affected volume will increase to 9m teu when China’s retaliation measures are factored in.
What we’ve seen so far are some spikes in volumes as manufacturers move to get goods shipped before the various tariffs come into effect, followed by a slump the following month. So far the reduction in volumes is minimal, but as the retaliatory measures grown on each side, we are likely to see more disruption. Now, so far the container shipping lines have been relatively sanguine about the prospect of a direct reduction in trade – if China drops volumes it’s a question of that trade shifting to other locations and ultimately it could be a good news story for Intra-Asian trade
You have to factor in the fact that the supply chain in Asia is centred around China and it’s complex. While the ships themselves can move anywhere they want, the supply chains are not as easy to recalibrate. Some disruption is inevitable. The other concern is that this disruption will only exacerbate the existing trend of what we call near-shoring or re-shore – effectively moving manufacturing hubs back to the US. Obviously that’s bad news for shipping volumes and freight rates.
For all the talk of positive sentiment right now, take the longer view and the shipping industry generally, and container shipping specifically, is still not in a great place. Freight rates are still unsustainably low, despite the consolidation we have seen in the market and a move on the part of the lines to form more efficient alliances. Overcapacity – i.e too many ships available in the market – is still an issue for shipping a decade on from the financial crash. Add to that the looming prospect of expensive environmental regulations and rising fuels costs and shipping is still looking ‘at risk’.
Regulation requiring shipping to reduce the amount of sulphur in its fuel is still the big concern. Install scrubbers, opt for compliant fuel or go large on LNG – either way this fundmanetally increases the cost of fuel and therefore shipping global trade. Estimates vary, but expect shipping fuel costs to rise by at least a quarter, or $24 billion, in 2020. Now most of that will be passed onto the consumer, but not all. Particularly for containers this is looking like a very costly exercise indeed. And probably one that the industry is still not fully prepared for. Sibcon this week in Singapore will flush out some important clarity on some aspects, so keep an eye out for the big ticket news there because it’s still the one thing that everyone wants to talk about.
Listen to the latest Lloyd's List Podcast
This week Lloyd’s List Editor Richard Meade is in Singapore taking the temperature of Asia’s shipping market. On the agenda: why the reshoring and near-shoring effect of the trade war is bad news for container shipping; how the box sector BAF battle is shaping up and why the looming 2020 deadline is dominating pretty much every discussion we’re having in Asia right now