Shanghai International Shipping Institute published the Chinese Shipping Prosperity Report in Q1 2016 on April 5, 2016. The report shows that the Chinese Shipping Prosperity Index (CSPI) stood at 77.96 points in the stagnant interval in Q1 2016, a new low since the first publication of Chinese shipping prosperity index in 2009. The Chinese Shipping Confidence Index (CSFI) registered 49.42 points, remaining in the depression since Q3 2011. The overall business performance of ship owners, port enterprises and shipping service enterprises kept deteriorating.

Fig. 1 Trends of Chinese Shipping Prosperity Index and Confidence Index

1 Profitability of Ship Owners Continues Deterioration But with Enhanced Control over Shipping Capacity

In Q1 2016, the prosperity index of shipping transport enterprises stood at 77.94 points in the stagnant interval; the confidence index of shipping transport enterprises stood at 29.29 points in the moderately stagnant interval. Affected by the dramatically declining space utilization and freights, the profitability of ship owners continued to deteriorate. Ship owners strengthened control over the shipping capacity and their willingness in shipping capacity investment hit a historic bottom. When the global seaborne transportation market fails to see improvement in the short term, ship owners significantly enhanced the control over the current funds.

             Fig 2 Trends of Prosperity Index and Confidence Index of Shipping Transport Enterprises

Capital chains of seaborne dry bulk transportation enterprises tightened. In Q1 2016, the prosperity index of dry bulk transportation enterprises was 62.28 points in the stagnant interval, down 6.39 points from the previous quarter; the confidence index of dry bulk transportation enterprises was 7.22 points, down 33.34 points from the previous quarter and falling to the moderately stagnant interval. The vessel turnover of dry bulk transportation enterprises dropped dramatically and the freights kept hitting new lows, leading to sprawling losses of enterprises. The prosperity index of profit/loss indicator of dry bulk transportation enterprises was only 25.33 points. As a result, nearly half of dry bulk transportation enterprises suffer financial constraints and this proportion is 11.4 percentage points higher than that in the previous quarter.

         

         Fig. 3 Prosperity Index of Business Indicators of Dry Bulk Transportation Enterprises

Profitability of container transportation enterprises deteriorates dramatically. In Q1 2016, the current funds, enterprise financing and labor demand indicators of container transportation enterprises all enjoyed slight pickup and stayed in the prosperous interval. However, the prosperity index of enterprise profitability only registered 59.95 points, mire in the stagnant interval for four consecutive quarters. The profitability of container transportation enterprises witnessed sharp deterioration. In addition, affected by the increased loan liability, lowered freights and increased operating costs, the enterprises are increasingly reluctant in shipping capacity investment.

Fig. 4 Prosperity Index of Business Indicators of Container Transportation Enterprises 

2 Inflection Point of China’s Port Industry in Sight

After the financial crisis, the seaborne transportation market becomes dismal and bankruptcies of shipbuilding enterprises or shipping enterprises frequented the headlines. Against the backdrop, however, China’s port enterprises maintained a stable development trend. But with the continuous slowdown of China’s economy growth, the business volume of port enterprises kept gliding and the profitability performance of loading/unloading businesses of port enterprises is nowhere near the past. In Q1 2016, the prosperity index of Chinese port enterprises registered 79.04 points in the stagnant interval, a historic low. Affected by the slowed-down growth of China’s economy, the port throughput, berth utilization, port charges all witnessed sharp declines against Q4 2015, with the profitability of port enterprises deteriorating severely. In Q1 2016, the prosperity index of port enterprise profitability was 51.89 points, refreshing the historic low and staying in the stagnant interval. 

              

            Fig. 5 Trends of Prosperity Index and Confidence Index of Chinese Port Enterprises

3 Shipping Service Enterprises Stagnant for 4.5 Years in a Row

According to Chinese shipping prosperity survey, the prosperity index of shipping service enterprises in Q1 2016 stood at 76.91 points, a rise of 13.41 points from the previous quarter but still in the stagnant interval. In Q1 2016, the confidence index of shipping service enterprises was 38.53 points, a slight pickup from the historic low in the previous quarter, but still in the moderately stagnant interval. The market was haunted by the pessimistic attitude. In terms of business indicators, apart from the current funds which is relatively assuring, all the other indicators such as the business volume, the business orders, profitability and labor demand were in the stagnant interval, showing the deteriorating business performance of enterprises.

    

         Fig. 6 Trends of Prosperity Index and Confidence Index of Chinese Shipping Service Enterprises

4 Forecast of Q2 2016

Q2 2016, it is forecast that the CSPI will reach 97.18 points, 19.22 points higher than the previous quarter to return to the slightly stagnant interval. The CSFI is forecast at 60.78 points in the stagnant interval. According to Chinese shipping prosperity survey, 55.2% of surveyed shipping enterprises hold a pessimistic view toward the overall performance of shipping industry in Q2.

          

Fig. 7 Forecast Trends of CSPI and CSFI

Deterioration of shipping transport enterprises expected to ease. According to Chinese shipping prosperity survey, the prosperity index of shipping transport enterprises in Q2 2016 is forecast at 97.73 points, approaching the demarcation line. The confidence index of shipping transport enterprises in Q2 2016 is forecast at 42.86 points, up 13.57 points compared with Q1 but still in the moderately stagnant interval, reflecting enterprise owners’ lack of confidence in the industry. In terms of the business indicators, persons in charge of ship owners generally hold a high expectation of growth in the freights and vessel turnover in Q2, and the profitability and current funds indicators will also improve. To be specific, the prosperity index of container transportation enterprises is forecast at 105.4 points and may step into the prosperous interval again after one year of depression. The prosperity index of dry bulk transportation enterprises is forecast at 88.99 points, 26.71 points higher than the previous quarter and in the relatively stagnant interval.

The prosperity index of port enterprises gaining on the demarcation line. According to Chinese shipping prosperity survey, the prosperity index of port enterprises in Q2 2016 is forecast at 99.27 points, an increase of 20.23 points from the previous quarter, gaining on the demarcation line but still in the slightly stagnant interval. The confidence index of port enterprises is forecast at 84.87 points in the stagnant interval. The throughput, berth utilization and other business indicators of port enterprises will all welcome significant growth, but as the port charges may decline and operative costs may go up, the profitability of port enterprises may have limited space for improvement in Q2.

Fig. 9 Forecast of Business Indicators of Port Enterprises in Q2 2016

Deterioration in business performance of shipping service enterprises may slow down. According to Chinese shipping prosperity survey, the prosperity index of shipping service enterprises in Q2 2016 is forecast at 94.34 points, an increase of 17.43 points from the previous quarter, but still in the slightly stagnant interval. The confidence index of shipping service enterprises in Q2 2016 is forecast at 60.57 points in the stagnant interval. The business orders and profitability indicators of shipping service enterprises will enjoy improvement.

       

                    Fig. 10 Forecast Trends of Prosperity Index and Confidence Index of Shipping Service Enterprises

5 Ship Owners Plan Multiple Measures for ECAs

The Yangtze River Delta will take the lead to implement emission reduction since April 1, 2016. The Pearl River Delta and Bohai Rim Waters will keep up soon. How will shipping enterprises cope with the Emission Control Area plan? What new opportunities are there? Shanghai International Shipping Institute conducted a survey on ship companies. The survey shows that more than 60% of surveyed ship owners chose “Replace the commonly used heavy oil with more expensive low-sulphur fuel”, 37.5% of surveyed ship owners chose "Use technically feasible emission cleaning or control equipment", 5% of ship owners chose "Consider to use LNG as the fuel" and 10% of the surveyed ship owners chose "Avoid entry into ports within the ECAs".  

                                           Fig. 11 Ship Owners' Countermeasures to ECAs

                    Note: Questions in this survey allow multiple choices.

6 Seaborne Transportation Enterprises Call for Financial and Tax Policy Support from Government

With the excessive seaborne shipping capacity worldwide and the low freights for a long time, the business performance of enterprises is on the slide and the seaborne transportation industry calls for government support. The most requested support from enterprises is about the financial and tax support from the government. Around 38.75% of ship owners chose "national financial and tax policies and support to ease business operation pressures" and around 20% of shipping owners chose "support from alliances that share a united front". Some other enterprises chose "support from cargo owners with stable cargo sources" or "support from financial organizations who can offer capitals".

Fig. 12 Survey Results of Supports Required by Ship Owners in View of the Pessimistic Shipping Market Outlook in  2016