SISI recently released the 1Q review and 2Q outlook report on the shipping market. According to the report, the market showed signs of improvement at the end of 1Q, but without a fundamental macroeconomic change, the markets will rebound within limits in 2Q, allowing no optimism for long-term trends.

International Dry Bulk Shipping

In 1Q 2009, the international dry bulk shipping market has recovered as compared with 4Q08, reaching the highest BDI index of 2298 points on March 10, up 1524 points from the previous record of 774 points on December 24, 2008, an increase of 197%.

According to statistics from Clarkson, in January, Brazil exported 17.51 million tons of iron ores, up 27.4% over last December; Australia exported 23.43 million tons, up 21.1% from 19.36 million tons last December. The demand for coals remained in the doldrums this quarter, mainly due to the decline in coal demand. As for the shipping demands of grains, the U.S. Gulf, South America and Australia had escalated grain imports since February, facilitating to some extent the revival of international dry bulk shipping market.

According to the maritime information released by Lloyd's, in March, the number of idle bulk carriers declined slightly from 484 last month to 446, with 15 Panamax and 9 Handymax or Supramax carriers being put into operation again. For the dismantling of old vessels, according to Clarkson's statistical data at the end of February, the dismantled capacity of global aging dry bulk vessels reached up to 3.2 million dwt in January to February 2009.

It is expected by SISI that, in 2Q09, the demand for iron ores will pick up from the 1Q level and remain basically unchanged afterwards in 3Q and 4Q, with full recoveries unlikely to happen within in short period of time; the demand for coals will maintain a low level in 2Q at large, which will continue into 3Q and 4Q. The improvement in Panamax market in 1Q09 was largely due to the strong demands for grain. Considering the seasonal nature of grain shipping, 2Q is the peak season for grain exports in South America, driving an even more robust demand for grain shipping worldwide. But the demand will slow down in 3Q and 4Q. In 2Q09, the BDI index is expected to remain the relatively high level of 1Q, fluctuating around 2000-3000 points. The 2Q level may be continued into 3Q and 4Q, but it is also possible for BDI index to fall back to be lower if the demand is offset by more vessel deliveries in 2H.

Chinese Coastal Dry Bulk Shipping

During January and February, the total cargo throughput of national above-scale ports (hereinafter referred to as "ports") registered 860 million tons, with 630 million tons from coastal ports, a decrease of 7.2%, and 230 million tons from river ports, up 1.5%. On March 4, coastal bulk freight index hit a new record low in recent five years, closing at 1072.66 points.

According to www.chineseport.cn, the coal throughput of ports fell 9.1% YoY in January; and the throughput decreased by 15 million tons YoY in February, a year-on-year decline of about 15.5%. The steelworks seemed inactive in the procurement of raw materials, translating into a depressed market. As investigated by China Iron and Steel Association in late February, the steel inventory of five categories totaled 6.7 million tons in China's 20 large- and medium-sized cities, a 37.9% increase of 1.84 million tons as compared with January. Among them, 5.9 million tons came from domestic markets, up 41.7%; 0.8 million tons from ports, up 15%. In addition, grain prices continued to fall, with grain freight index down from a high position of 806.01 points to 628.57 points.

As estimated by the report, CCBFI will show a limited rebound in 2Q, with the freight index fluctuating in the vicinity of 1200 points; continued rebound may be expected in 3Q and 4Q. Since mid-March, due to the declining trend in coal inventory in major coastal power plants, coupled with an increased demand for coals, the freight index climbs slightly on a continuous basis. In 2Q09, the metal ore freight rates will remain at the same low level as before. As a result of the one-month large-scale acquisition of corn, the coastal grain shipping will remain stable in 2Q, revealing noticeable seasonal characteristics.

International Container Liner Transport on Three Trunk Routes

Pacific routes: the eastbound shipping volume reached 3.097 million TEUs, down 3.1% YoY, while the westbound shipping volume recorded 1.83 million TEUs, up 5.4% YoY. The monthly deployment of shipping capacities in the West Coast of North America/Far East averaged 1.891 million TEUs, an increase of 0.96% YoY, while that in the East Coast of North America/Far East averaged 713,800 TEUs, up 13.3% YoY.

As anticipated by the report, the capacity on Pacific routes will remain basically unchanged in 2Q, despite the possibility of a slight decline. Major ship-owners will substitute medium-sized vessels for some large ones, and freight rates will remain stable. With the advent of the peak season, the reasonable storage of shipping capacity and collective price hike among ship-owners will produce short-term impacts on the market.

Asia-Europe routes: the eastbound shipping volume reached 1.237 million TEUs, down 0.4% YoY, while the westbound shipping volume arrived at 3.203 million TEUs, down 3.5% YoY. The monthly deployment of shipping capacity in the Northwest Europe/Far East averaged 2,297,100 TEUs, down 1.5% YoY, while that in the Mediterranean/Far East averaged 1,347,800 TEUs, down 22.7% YoY.

As anticipated by the report, with the arrival of the peak shipping season, it is reasonably believed that 2Q will outperform 1Q in shipping volume which will show a steady growth in the next two quarters.

Atlantic routes: Westbound Atlantic routes showed a lackluster performance. On March 10, the westbound freight rate reached around USD 2,400/TEU, while the eastbound freight rate was close to USD 1,400/TEU after a dramatic rise.

As anticipated by the report, Atlantic routes will not witness major changes, with westbound shipping volume drifting slightly lower. The freight rates on Atlantic routes will rise slightly in 2Q. A number of shipping companies operating on these routes announced freight hike after April 1, bringing the freight rates to a more reasonable level.