On July 3, 2011, Shanghai International Shipping Institute (SISI) issued China Shipping Prosperity Report (2011 Q2). According to the Report, Q2 registered a China Shipping Prosperity Index (CSPI) of 103.81 points, having strolled in the vicinity of the demarcation line for two consecutive quarters; and a China Shipping Confidence Index (CSFI) of 100.57 points, lagging behind CSPI for the first time and reflecting insufficient confidences towards future market and industry among enterprise executives.

As suggested by the Report, only 20% of shipping enterprises excluded the possibility of a “double-dip recession” in China’s shipping industry; while over 50% of shipping enterprise operators found China’s shipping industry moving towards a “double-dip recession” (See Fig. 2).

?. The shipping transport industry is most likely to undergo a “double-dip recession

According to the investigation, an overwhelming majority (82.35%) of shipping transport operators believed the industry has been or would be in the grip of a “double-dip recession”; industry outlooks remained uncertain (See Fig. 3). In the second quarter, weighted down by a continuous deterioration of enterprise prosperity in Q1 and Q2, the Shipping Transport Enterprise Prosperity Index struggled to 96.83 points, having stayed under the demarcation line for two consecutive quarters; the Shipping Transport Enterprise Confidence Index reached a quite depressing level of 66.04 points. Having deteriorated significantly for 6 consecutive months, the shipping transport industry expects no promising signs on industry or market environments in Q3. The Confidence Index will keep declining to 64.03 points, the rock bottom since 2009 Q4 (See Fig. 4).

In a nutshell, on the one hand, the constant increase in shipping capacity severely unbalanced the supply-demand structure and translated into declining freight rates; and on the other hand, the operating costs kept soaring for five consecutive quarters, leading to aggravated enterprises profitability. Enterprises find increasing intensions in current funds and more difficulties in financing.

? China’s port industry revealed promising development, in spite of risks of overcapacity

China’s port industry presented a sound development at large. According to China Shipping Prosperity Investigation, the second quarter realized a quite thriving Port Industry Prosperity Index of 120.92 points, up 3.76 points over the previous period; and a Port Industry Confidence Index of 160.39 points, up 11.29 points from the previous level, indicating a rather thriving market outlook. To sum up, China’s ports enjoyed a steady growth in production performance, with promising signs continuously found in operational performance among port enterprises; executives were bullish about the overall operation of China’s shipping industry which continued a fairly fast development (see Fig. 7).

Port enterprises were facing the risks of excessive production capacity. As revealed by the investigation of China Shipping Prosperity Index, 52% of the port enterprises noticed port overcapacity; 41% found the supply-demand in a balanced status; while only 7% thought the production capacity insufficient (see Fig. 8). There were apparent risks of excessive production capacity in the port industry.

? Shipping service enterprises underwent all-around deteriorations in operational performance.

In 2Q11, China’s shipping service enterprises recorded a prosperity index of 96.02 points, a glissade of 10.26 points from the previous quarter, falling from thriving into depressing interval. The confidence index of the shipping service industry arrived at a fairly depressing level of 86.79 points, after plummeting 28.26 points from the fairly thriving position of the previous period (see Fig. 9).

Varying declines were witnessed in all operation indicators of the shipping service enterprise. In stark contrast to the slight rally in trade price, all other monitoring indicators presented a slipping trend in prosperity, especially business reservation and trade volume which fell directly from thriving into depressing interval. An increasing number of enterprises were in debt (see Fig. 10).

?. When will China’s shipping industry see a recovery?

China’s shipping industry will continue to decline in 2H11.As predicated by China Shipping Prosperity Index, in 3Q11, the shipping transport enterprises will expect a prosperity index of 96.30 points, remaining at the depressing level after a 0.53-point setback from the present quarter; and a confidence index of 64.03 points, dropping 2.01 points from the present quarter to indicate a quite depressing outlook. The Prosperity Index of Willingness to Invest in Shipping Capacity registered 84.86 points, entering for the first time into the depressing interval since the financial revival after the global crisis. After the first-time fall in investment willingness, the market and overall industry environment will further deteriorate in 3Q.

According to China Shipping Prosperity Report, China Shipping Prosperity Composite Index reached 98.63 points in May 2011, down 0.29 points over the previous period. The leading indicators had droped for seven consecutive months after reaching the peak in November 2009, and kept shocking downwards amidst fluctuations afterwards. In May 2011, the leading indicators hit their low since July 2009. Based on the time difference between leading indicators and coincident indicators, China’s shipping industry in 2H11will surely be enveloped in the shadow of continued downturn.

The shipping market is anticipated to restore in or after 2013.

According to China Shipping Prosperity Report, 64% of shipping enterprises believed in a market recovery in or after 2013. About 25% of shipping enterprise operators were confident about an earlier recovery in 2012; while only 11% thought the recovery will soon arrive, probably in the second half of this year (see Fig. 13). Shipping enterprise operators generally joined the short side of the market.