China’s Tumbling Economy is Indication of Tough Days Ahead for Shipping Industry

Shipbuilders, port operators, and cargo liners made millions from China’s economic boom and bulging trade activity. Now, it is these very entities that have been dealt a severe blow with the Asian giant’s growth becoming menacingly slow. Sure, there are opportunities to be harnessed elsewhere but not in the present scenario, where oil prices are tumbling and demand for oil rigs has plunged. China’s imports showed a 13.2% decline in 2015. Meanwhile, the rates for shipping commodities from Asia to elsewhere have fallen, and so has the traffic on some of the largest routes here.

Bloomberg says that in Singapore, for instance, container traffic shrunk by about 8.7% in 2015 – it is important to note that in the last six years, this is the first time that such a drop has been reported. A similar story is emerging from Hong Kong which is among the five busiest ports in the world. The dwindling sea route traffic isn’t limited to Asia, though. Rotterdam, the bustling port city in Europe, suffers the same malady.

The uncertain economy in China is affecting the present of the shipbuilding industry. But it is now emerging that the impact could be felt a few years into the future as well. For one, new orders for vessels have seen an alarming fall last year; this coupled with a parallel rise in the number of unwanted vessels being demolished tells a story with a far-reaching impact.

The scenario today is in stark contrast to a few years ago when oil prices were on a firm upward trajectory and the global economy was getting back on its feet and China was racing toward robust growth. In 2013 alone, 1,200 new orders for bulk carriers were placed, says Clarksons Research, a UK-based consulting firm. Compare that number against just 250 in 2015 and the picture becomes clear.

Chinese shipbuilders, who were on a profit-making spree, are feeling the brunt of this downturn rather severely. And there was an ominous sign just two months ago with Chinese shipbuilder, Zhoushan Wuzhou Ship Repairing & Building, filed for a bankruptcy – the first such state-owned company to do so in over ten years.

However, there’s consolation in the fact that a few customers have been stocking up on crude oil to benefit from the low prevailing prices. Whether this will be enough to sustain business will only become clear in the next few months.

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