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Li Shenglin, China’s transport minister, has pledged to slow deliveries from the country’s shipyards, in a sign that the world’s biggest shipbuilding nation will confront the oversupply problems that have created the worst crisis to hit the industry in decades.
Speaking at the World Shipping China conference in Hainan, Mr Li said the imbalance between supply and demand in world shipping markets had combined with a steady rise in shipping costs to create a “double squeeze” on the industry.
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“They have led the shipping industry to a situation that is more depressed now than in 2008,” he said. “This state of affairs could persist for quite a long time.”
Rates in nearly all shipping sectors are too low to cover costs, as deliveries of ships ordered before the 2008 crisis expand capacity far faster than demand. At the same time, shipping companies are having to absorb fuel prices pushed sharply higher by rising oil prices.
The crisis has been most acute for oil tanker operators, but has also hit container shipping companies and operators of ships carrying dry bulk commodities such as coal and iron ore. It is expected to persist for longer than the slump in late 2008 and 2009 because demand is likely to take so long to absorb the excess ships.
China would use “every possible means” to alleviate shipping overcapacity, Mr Li said, without saying what measures the government planned to take. It remains to be seen whether the government succeeds in persuading shipyards to do as it wants.
“We will continue to strengthen macro controls over shipping, actively guiding the orderly development of bulk ship and container shipping capacity,” Mr Li said.
His comments come after China Cosco
, the Hong Kong-listed arm of China’s biggest shipping company, last week announced a Rmb1.63bn ($257m) net loss for the third quarter. Cosco, China Cosco’s state-controlled parent, is the world’s biggest operator of dry bulk ships and a significant container ship operator.
They also coincide with continued problems for General Maritime, one of the world’s largest listed tanker operators, which cancelled a scheduled conference call scheduled for Thursday about its third-quarter results amid continued concern about its ability to meet its debt obligations. The company gave no details about its debt restructuring efforts in the results statement, which showed a third-quarter net loss more than doubled to $55.1m. The company has until November 10 to reorganise its debts before waivers from its banks on breaches of its loan agreements expire.
Erik Nikolai Stavseth, a shipping analyst at Oslo’s Arctic Securities, said Mr Li’s comments could signal a reduction in output from China’s shipyards. Deliveries so far this year have increased the world’s dry bulk ship capacity by 10.9 per cent to 593m deadweight tonnes, a measure of capacity. Mr Stavseth estimates demand will grow only 5.9 per cent over the whole year. The world tanker fleet will grow 6.6 per cent over the year and demand only 2.7 per cent.
China is the world’s largest shipbuilder by total tonnage produced, although South Korea still has the lead in value-adjusted measures of output.
“Any effort to curb deliveries will be a positive for the dry bulk market,” Mr Stavseth said.
Mr Li’s comments mark a significant departure because China as the world’s largest importer of dry bulk commodities had traditionally been seen as favouring very low dry bulk rates. His remarks suggest the emphasis has now moved towards the development of a healthy international shipping industry.
Mr Li said China wanted to “deepen co-operation” internationally in the shipping industry.