SHENZHEN, China — China’s shipping industry faces further turmoil as the country imposes new polices aimed at reining in severe overcapacity in the steel, cement, electrolytic aluminum, plate glass and shipping industries, according to the head of the Shanghai Shipping Exchange.
China is tackling chronic overcapacity problems across multiple sectors by blocking approval for new projects and by making better use of the market, according to a new plan issued by the State Council on Oct. 15.
“This will hamper China’s imports of ore and cement and will drive the BDI (Baltic Dry Index) down,” Zhang Ye, the SSE’s president, told the JOC’s 7th Annual TPM Asia Conference on Thursday. The BDI, which is issued by the London-based Baltic Exchange and measures average pricing to ship raw materials, stood at 1,965 on Thursday, up from about 1,000 points since mid-August.
Despite the headwinds carriers face, Zhang believes the Twenty Suggestions in Helping the Shipping Industry to Reform and Become a Healthy China launched in September by the Ministry of Transport will help the industry’s recovery. The ministry’s policies include lifting the entry level to the shipping industry, and retiring old, polluted ships.
Zhang believes supervision, transparency, long-term agreements and derivatives will be the key factors to maintain freight rates. “For example, from next year, China will require carriers to provide accurate shipping rates to the Ministry of Transport, instead of practices in the past where they only needed to provide a range of shipping freight. Some carriers were providing their shipping freight in a range of $50 to $5,000, which is ridiculous,” Zhang said.
He thinks China’s newly approved China (Shanghai) Pilot Free Trade Zone will provide opportunities for carriers and for the SSE. “We plan to start up a derivative trading shipping market in the SEFZ,” Zhang said, without providing details.
He believes the industry will become more receptive to the derivatives market. “It is a very good tool for hedging, and it all depends how you are going to use it,” Zhang said.
As for the P3 Network, a proposed alliance among Maersk Line, Mediterranean Shipping Co. and CMA CGM that requires Chinese approval, Zhang said, “The Chinese government is a government with an adequate legal system, and it should work on this issue according to its laws.”
Zhang believes that objectively speaking, the P3 Network will help stabilize freight rates, but the market also faces risks. “When it is getting strong, it might not listen to you, while at the beginning it would report every shipping freight rate,” he said.
The question is whether the shipping giants have knocked at the right door. “I talked to Maersk and they informed me that they have communicated with China’s Ministry of Commerce, but, I think they should go talk to the Ministry of Transport.”
Contact Annie Zhu at email@example.com.
[Updated to clarify Zhang's comments on P3.]