Asian Investment in Europe’s Shipping Sector: Part I
As growth stagnates, the European shipping sector is confident that the Asian market will remain a reliable lifeline. According to HSH Nordbank’s recent survey ‘Shipping goes to Asia 2015’, Europeans are increasingly optimistic that Asian capital will rejuvenate the industry this year.
The survey sampled 500 executives from its international client base, almost 80 percent of whom planned to move their business activities into Asia if they had not already due to ‘proximity to the growth market.’ 80 percent of those surveyed also expected Asian providers of capital to penetrate ship finance. In the first of this two-part article on the opportunities and threats to Europe’s reliance on the Asian shipping sector, we take a look at the general trends in the industry and intra-Asian trade.
Previously dominated by European banks, Chinese banks have significantly increased loans to global ship owners since their retreat from the market in 2013. Speaking to Asia Briefing, Michalis Pantazopoulos, Senior Vice President and Managing Director of Liberian Registry – the second largest shipping registry in the world – pointed out that it is still uncertain how market drivers will reduce or expand Asian financing. However, he added: “One thing for sure is that China’s growth is strong and has some way to go until it shows some signs of fatigue or settlement. Considering also that a few years ago Asian capital and financing was low or non-existent in the European shipping sector and today not only exists but grows is also a positive sign that there is some way to grow in times ahead.”
As the Baltic Shipping Centre Index indicates, Europe and Asia currently dominate the world’s key shipping centers. Based on an assessment of their maritime services, business environment and port facilities, the index suggests that of the top ten global shipping centers, five are in Asia: Singapore, Hong Kong, Shanghai, Tokyo, and Busan, and three are in Europe: London, Rotterdam and Hamburg.
With the Chinese, Japanese and European economies all still experiencing difficulties, however, European faith in Asia’s financial clout may be somewhat premature. In fact, the HSH Norbank survey also highlights the disparity between European and Asian perceptions of the Asian marketplace.
Only one third of Asian respondents projected rising revenues for 2015 with a similar percentage forecasting a drop in revenues. European respondents were looking to Asia with far more confidence than those within the region.
Speaking to IHS Maritime 360, Ingmar Loges – Global Head of Shipping International Clients at HSH Nordbank – suggested that in contrast to German shipowners, “The Asian shipping industry is in a substantially better position than many other market participants, thanks to strong intra-Asia cargo traffic.”
Intra-Asian trade has been bolstered in both Southeast Asia and China by the establishment of the ASEAN Economic Community (AEC) and the ASEAN-China Free Trade Agreements. Earlier this month, however, global shipping consultancy Drewry reported that intra-Asia container shipping rates fell to their lowest value in four years.
Typically, intra-Asian freight rates are stable as Loges suggests. Recently, the slowdown in the Chinese economy, falling cargo demand on key trade lanes and the deployment of larger ships have contributed to this sharp drop in rates.
In contrast to the recovering global container freight rates over the same period, this decrease reveals the vulnerabilities of the Asian shipping sector to regional factors. Given the feeble Asia-Europe container freight rates, which suffered a record weekly fall in November last year, European shipowners should be wary of over-reliance on investment buttressed by intra-Asian trade.
ASEAN-China trade, however, can be expected to pick up throughout this year. The ASEAN-China FTA saw tariffs on 90 percent of all traded goods dropped to zero between six ASEAN nations. Cambodia, Laos, Myanmar, and Vietnam are all expected to come into compliance by the end of 2015, which should stimulate China’s bilateral trade growth with ASEAN members.
Originally published as ‘Asian Investment in Europe’s Shipping Sector, Part 1: Trends and Intra-Asian Trade’ on Asia Briefing, 5 March 2015.
Image: Anthony Zinonos.