FITCH Ratings says a slowing Chinese economy could spark bankruptcies and consolidation among smaller shipping companies, aggravated by overcapacity, weak freight rates, reports Lloyd's Loading List.
Container shipping and dry bulk were the most at risk, said Fitch. China accounts for 40 per cent of world container volume, two-thirds of iron ore imports, 20 per cent of coal imports and 16 per cent of oil imports.
Thus, slowing growth in the world's second largest economy will slash demand for shipping services, boosting oversupply and depress freight rates.
Fitch said more small dry bulk shippers will likely go bankrupt as several already have. Increased scrapping of dry bulk vessels in 2015 did not have much of an impact, with the Baltic Dry Index hitting its lowest point in a decade.
Consolidation in the form of a potential merger between shipping giants Cosco and China Shipping Group also do not bode well for sector fundamentals.
Fitch said dismal export and manufacturing data along with China's economic transition increased uncertainty for containers, forecasting demand for 2015 to slow to two to four per cent.
Fitch notes that the year-to-date average of the China (export) Containerised Freight Index, which is a barometer for freight rates, fell 16 per cent compared to the year-ago period.
"Supply/demand imbalance will be exacerbated by container shipping companies continuing to order mega vessels. These vessels are largely limited to the Europe-Asia trading lane, contributing to the overcapacity," Fitch said.
Source : HKSG.