Asia's shipping sector faces rough waters in H2

SINGAPORE - With low trade volume growth and greater capacity addition expected in the second half of the year, Asia's shipping sector will continue to face a difficult operating environment although experts see a silver lining for dry- bulk shipping.

Demand for Asian goods has been weak so far this year, with European imports down 2 percent year-on-year in first quarter, partially offsetting a 6.5 percent increase in imports to the US West Coast.

Under such conditions, average spot rates on Asia-Europe trades had fallen 55 percent in second quarter, and even the freight rates of trans-Pacific lanes were off 15 percent on year, as the liner companies had to grapple with the knock-on effect of lower volume growth and greater capacity addition.

In the past six months, a structural overcapacity of container shipping and irrational competition among liners had forced the industry to dump prices even in the face of losses.

Weak demand growth should have thrown the gauntlet at the container shipping industry to respond by properly containing capacity deployment. But no carrier wanted to make the first move to withdraw capacity, for fear of handing customer accounts on a silver platter to competitors.

As market-share goals are still very important and carriers are extremely keen to retain their key customer accounts, industry competition remains intense and this has caused spot rates to weaken quickly so far this year.

For the rest of the year, there seem to be no turnaround in sight. CIMB Research forecast flat European imports and just 3 percent growth in US imports for the full year.