Imports to shore up shipping

Weak demand, depressed rates continue to hamper industry

China's growing imports are expected to lift global trade volume, shoring up a shipping industry that has been struggling with difficult market conditions in recent years, a senior official from the world's largest container operator said on Tuesday.

But the industry's troubles are likely to persist due to overall weak demand, depressed freight rates and exacerbating price wars, said Tim Smith, North Asia region CEO of Maersk Line, the container arm of the Danish shipping conglomerate AP-Moeller Maersk Group.

China has displayed "optimistic signs" in terms of global trade demand, as disposable income of the nation's emerging middle class has significantly increased in recent decades, Smith said.

The company expects to see "good growth" in China's imports in the near future.

Dubbed the barometer of the global trade, shipping companies are sensitive to changes in cargo flow patterns. The Danish company, which ships about 14 percent of world container cargo by tonnage, recently slashed its growth forecast for global seaborne demand this year to between 2 and 4 percent from above 4 percent previously.

Smith said the United States is showing the "strongest growth", despite the negative impact caused by its fiscal squeeze.

Growth in Europe has been hampered by debts and other problems and is expected to remain flat, he added.

"Europe is dragging down the global economy," Maersk Group CEO Nils Andersen said in a recent interview.

But for the shipping industry, the problem of weak demand has been further compounded by the oversupply of vessels.

Industry consultant forecasts estimate that the global container fleet will grow 7.5 percent this year, well above demand growth of around 5 percent.

This means that 2013 will be the fifth consecutive year to see vessel supply exceed demand, according to industry data.

Industry analysts said these factors will put downward pressure on shipping freight rates, putting the industry deeper into the red.

The Shanghai Containerized Freight Index, which measures the cost of shipping containers from China, has fallen to one of its lowest points in recent years. The current price to transport a container to Europe is less than $700, far below the break-even point for shipping companies.

"The current freight rates are unsustainable. We need a strong push to raise the rates back to the sustainable level," Smith said.

The Danish company recently announced plans to double the rates from the current level on the Asia-Europe route, beginning from July 1. But analysts doubt customers would agree to the full hike.