Slower economic growth, deteriorating export competitiveness and weak liner shipping profitability are putting pressure on the fees Chinese port operators can charge, said a new Moody’s report.

Overcapacity in the liner shipping industry, the key customer of port operators, is exacerbating the pressure on port operators’ margins, according to the report titled “China Ports — Slower Economic Growth Is Challenging the Sector.”

Consequently, shipping lines are facing significant pressure on freight rates, which in turn will make it increasingly difficult for port operators to negotiate higher container handling charges, it said.

The China Containerized Freight Index, a barometer of the country’s shipping market, saw an average composite index of 688.6 for the first seven months of 2016, dropping from the annual average of 875.9 in 2015, according to the Shanghai Shipping Exchange.

Port operators in China are facing major headwinds from slower economic growth and a weaker throughput outlook, which could lead to margin pressure, the report noted.

Export-oriented ports such as Shanghai and Shenzhen will be particularly affected by slowing container throughput amid muted export growth in China, said Osbert Tang, a Moody’s Vice President and Senior Analyst.

These pressures are somewhat mitigated by the manageable capital expenditure (capex) plans for the port operators, as most have sufficient capacity to handle mega container ships.

The credit rating agency noted that China’s Belt and Road Initiative will increase merger and acquisition capex for the port operators as they expand overseas, although most operators have thus far been selective in their investment decisions.

In the short term, such geographical expansion will raise the capex burden and increase political, execution and currency risks for the operators.

However, in the longer term — and subject to their ability to manage these challenges — it will allow the operators to achieve synergies and increase their geographical diversification, the report predicted.

Source: Xinhua