How China’s Trade Slowdown is Affecting the Shipping Industry

While it’s true that China’s annual GDP growth is the lowest that it’s been since 1990, the slowdown from a 7.3 percent GDP in 2014 to 6.9 percent in 2015 was expected, and isn’t very far off from economists’ predictions of around 7 percent. So why does everyone seem so alarmed?

It’s like the popular saying goes, “When China sneezes, the rest of the world catches a cold.” The fact is, the rest of the world has long been highly affected by the movement of China’s economy — which is the second largest in the world.

Analyzing China’s Decelerating Economy

If one thing is clear, it’s that China’s consistent and extraordinary growth patterns have begun to slow down. International markets have suffered significantly due to the increase in the economic uncertainty of a country so heavily relied upon for steady growth.

In addition to the yuan (China’s currency) dropping 6 percent since August of 2015, the country isn’t purchasing quite as many commodities as it used to. For a country previously known for buying metals, fuels, and crops to feed its expanding economy, China’s purchase of raw materials has noticeably begun to slow.

With a decrease in imports and the worldwide slowing of exports due to a decreasing demand for oil, China’s customers just aren’t in a rush to purchase right now. The overall result has been a slowing of activity at some Chinese ports, and at various other ports around the world.

The world’s largest port, Shanghai International Port, reported an 18 percent decline from the previous year’s sales, and the Shanghai Shipping Exchange’s containerized freight index has plunged as well, dropping 27 percent since the beginning of 2015. Although container volume at Shanghai did grow 3.7 percent in 2015, this is still a big drop compared to the 4.8 percent growth from the year prior.

Affect on Shipping Rates

Chinese shipyards order totals decreased by 59 percent through November of 2015, according to the China Association of the National Shipbuilding Industry.

Because of the lack of demand for oil and other commodities from slowing growth markets like China, global shipping rates have decreased somewhat. An oversupply of ships has also increased the rate of decline. In 2015 alone, there was a 40 percent drop worldwide in new ship orders, according to Clarksons Research, a London-based consulting firm.

China is considered a global leader in the production of ships, and therefore the declining shipping rates have put something of a damper on the industry as a whole. This is especially so in China, where Zhoushan Wuzhou Ship Repairing & Building recently became the first Chinese government-backed shipyard to go bankrupt.

On the other hand, oil tanker operators have seen an increase in orders for new tankers due to extremely low oil prices, with new orders up 14 percent since last year. Also, due to slow trade operations, ship and oil rig storage demand is high, and companies like International Shipcare in Malaysia are becoming a necessity.

What Does the Future Hold?

Experts say China’s shipping industry will continue to grow at a slower rate, with an expected annual rate of less than 5 percent over the next 5 years, due to the lack of demand for products and an oversupply of ships. However, thankfully China’s slowdown has had minimal, if any affects on U.S. ports, with the Ports of Los Angeles and Long Beach already off to a stronger than expected start to 2016.

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