China's shipping sector has recently seen some signs of improvement, but it still faces a long journey to recover from its problems since the 2008 global financial crisis, industry analysts told the Global Times.
The third-quarter reading for the China shipping prosperity index, which was released in mid-October by the Shanghai International Shipping Institute (SISI), rose to 101.71, up 15.01 points from the second quarter.
It was also the first time since the fourth quarter of 2011 that the reading was above 100. A reading above 100 indicates expansion, while below 100 indicates contraction.
During the quarter, dry-bulk shipping companies saw the indexes measuring their freight rates and profitability hitting record highs of 152.71 and 144.33, respectively, rising by 481 percent and 382 percent from the previous quarter, according to the SISI.
The Baltic Dry Index (BDI) issued by the London-based Baltic Exchange, a measure that tracks the cost of dry-bulk shipping globally, also saw a considerable rebound in the last four weeks, jumping nearly 50 percent.
However, the recent improvement could be temporary, as there has yet to be any longer-term boost for the industry, which is still mired in oversupply, Zhou Dequan, deputy director of the shipping research department at the SISI, told the Global Times Monday.
Difficulties remain
China COSCO Holdings Co, the listed arm of China Ocean Shipping (Group) Company, known as COSCO Group, the country's biggest shipping company, saw its losses in the first three quarters balloon to 2.03 billion yuan ($334.14 million), reflecting the difficult times the country's shipping sector is facing.
Like a number of other domestic shipping heavyweights, COSCO invested heavily to expand its shipping capacity around 2008. An industry boom that peaked in 2007 had spurred industry-wide investment, but firms suffered as demand cooled. And the immediate future does not look too bright.
China's economy is expected to grow by roughly 7 percent in 2014, amid government efforts to shift economic growth away from reliance on investment, which could mean continued sluggish demand for the shipping sector, Zheng Ping, a senior analyst with industry information portal chineseport.cn, told the Global Times Monday.
Chinese shipping firms are not the only ones that are suffering. Maersk Line, the world's largest shipping group, has also been hit by sluggish global demand.
"We haven't seen a Christmas or Golden Week rush this year. Traditionally this season should be very strong for trade, but it's going to be different this year," David Skov, head of South China operations at the Danish shipping company, was quoted as saying by a South China Morning Post article in early October.
In the absence of any quick solutions to turn around the industry's fortunes, market watchers say Chinese shipping giants' investment in overseas ports over the past few years could offer a beacon of hope. Moves to invest abroad
China Merchants Holdings (International) Co, a unit of China Merchants Group, signed a framework deal with Tanzania in May for a partnership that includes the construction of a new port. It was the latest of the company's moves to expand into overseas ports in recent years.
In January, Hong Kong-based port operator China Merchants announced that it had agreed to purchase a 49 percent stake in France-based port operator Terminal Link SAS for 400 million euros ($550 million), just weeks after its announcement of an acquisition of a 23.5 percent stake in the Port of Djibouti, located near the entrance to the Red Sea.
China Merchants also raised its stake in a container port terminal in Colombo, Sri Lanka to 85 percent in 2012 after buying a controlling stake in it in 2011.
In another example of State-owned shipping giants expanding overseas, COSCO Pacific, a port operator subsidiary of COSCO Group, invested an additional 230 million euros into further development of Piraeus Port, the largest in Greece.
COSCO signed a 35-year lease deal worth 4.3 billion euros in 2008 to take over operation of Piraeus Port.
State-owned companies have been playing the main role in this overseas investment spree, mostly in the field of development and management of container terminals, noted Zheng at the information portal chineseport.cn. This is partly due to the huge investment required, he noted.
One private company that has also got in on the action is Hutchison Whampoa, the telecom-to-port conglomerate owned by Hong Kong billionaire Li Ka-shing.
Its subsidiary, Hutchison Port Holdings, signed a deal for the construction and management of the port of Karachi in Pakistan in 2007. The deal also granted the company a concession period of 25 years.
Such investments are helping domestic shipping companies to establish a global network, said Zhou of SISI, adding that revenues generated from operating ports have proved to be quite stable compared to the fluctuations seen in the shipping business. "An increased focus on overseas port investment will be a trend in years to come," he said.
The international container terminal sector "remains dynamic and profitable," Drewry Shipping Consultants, a London-based shipping consultancy, said in a report released in late August.
Global container port demand is expected to surpass 800 million twenty-foot equivalent units (TEUs) per annum by 2017, equaling an annualized growth rate of more than 5 percent, according to the Drewry report.
Meanwhile, analysts have warned about potential political and cultural barriers facing such investments, given the significance and sensitivity of port businesses for the host countries.
The selection of investment destinations is also a matter of practical importance, Zheng remarked.
Investment in ports in emerging markets such as Southeast Asia's Vietnam and Myanmar could offer greater returns, he suggested.
These markets are becoming more prominent centers of manufacturing and production as China moves toward an upgrading of its industrial structure, so their demand for shipping is likely to increase, Zheng noted.