Amidst supply chain restructuring, the US-China tech conflict, and domestic housing policies impacting China's economic landscape, the world's second-largest economy grapples with a subdued real estate market and a lackluster consumer sector. Surprisingly, the Baltic Dry Index (BDI) experienced a significant surge on November 27th, reaching its highest level in a year and a half for the third consecutive trading day. Analysts attribute this upward trend to an increased demand for iron ore and larger shipping vessels in the market.
Analysis of public data reveals an upward trajectory in the Baltic Capesize Index(BACI) and the Baltic Panamax Index (BPNI). This indicates that the growth in cargo ship capacity supply is failing to keep pace with demand, resulting in escalating freight rates and rentals.
Projections from international shipping research institutions, including Drewry, Alphaliner, and Clarksons, suggest that the supply is expected to outstrip demand in 2023 and 2024, posing challenges for container freight rates. However, the industry's move toward larger container ships, exemplified by vessels like Integrity from Ocean Network Express (ONE), a member of the global shipping alliance THE Alliance (THEA), could potentially aid shipping companies in cost reduction and profitability enhancement.
In the realm of bulk carriers, both new and second-hand ship prices remain elevated, prompting shipping companies to exercise caution in their acquisition endeavors. Additionally, the need for accelerated dismantling of vessels over 20 years old, non-compliant with environmental standards, and economically inefficient limits overall capacity expansion. The possibility of further capacity expansion hinges on whether the rise in freight rates provides shipping companies with improved profit margins.
Global iron ore export volumes are anticipated to surpass those of Q3 2023 but fall short of Q2 2023, with December traditionally marked as a peak month for iron ore exports. However, a substantial decrease in exports is expected in January and February of the following year. China's import of iron ore remains unaffected despite the challenges in its real estate market and economic downturn, as 70% of the world's iron ore exports are directed to China. This resilience may be attributed to the possibility of low inventory levels. Import data underscores a nearly 20% increase in iron ore imports to China from January to October 2023 compared to the same period in 2022.
Despite challenges in China's real estate sector, evident in a real estate development investment growth rate of -9.3% for January to October 2023, Economist Intelligence Unit(EIU) and S&P Global have revised their 2023 economic growth rate forecasts for China in November, signaling a less severe economic downturn.
Considering the less optimistic outlook for container shipping in 2023 and 2024, shipping companies may implement service reductions or mergers to prevent freight rates from collapsing. Evergreen Marine Corp. is seizing this period to acquire new containers and refrigerated containers, preparing for future demand.
The company plans to purchase 60,000 containers, 7,000 refrigerated containers, 800 special containers, and 7,000 refrigeration units, with an expenditure of approximately NT$7 billion. These new containers offer data visualization features, providing real-time information on GPS positioning, collisions during transportation, and temperature changes throughout the journey. In the bulk shipping sector, the EU has committed €50 million to restore and upgrade Ukraine's damaged port infrastructure following Russia's invasion, contributing to a swift increase in global demand for grain shipping.
