Chinese ports feel the pinch

The news that Maersk Line is to end services to and from ten Chinese ports from September in a cost cutting exercise could be construed as an unhappy symptom of China’s growth slow down.

In its latest trading update, the shipping giant reported an 89% slide in quarterly profit and a 16% decline in revenue, despite still making a profit. Its 2% annualised return on invested capital during the last quarter was just one-fifth of its target.

“We frequently review the ports/terminals that we service in China, including the inland ports where we provide transport solutions through the Connecting Carrier Agreement. We focus on the ports where we can offer the most benefits that create growth, better service and opportunities for our customers,” it said in a statement.

The trouble is that the shipping sector is beset by overcapacity and deflating costs, which means severe belt tightening across the industry.

Ocean carriers have also accelerated the shift towards more direct calls at the expense of transshipment because it is too expensive. Instead, feeder ports are being added to mainline services to save on feeder costs

So in light of this tricky environment, Maersk’s only real option has been to slash spending.

And the news is not good for Chinese ports, of which Maersk has a presence in 41 locations across the country, certainly not when it comes to exports anyway.

A new report from Moody’s Investors Service has highlighted that port operators in China are facing headwinds from slower economic growth and weaker throughput outlook.

It warned that export-oriented ports such as Shanghai and Shenzhen will be particularly affected by slowing container throughput amid muted export growth in China with overcapacity in the liner industry exacerbating the pressure on the operators’ margins.

Because shipping lines are also facing significant pressure on freight rates, this is expected to make it increasingly difficult for port operators to negotiate higher container handling chargers.

Moody’s notes headroom is narrowing in the ratings of the port operators, which it says will likely prompt them to preserve cash flow through stringent cost controls and discipline in overseas expansion.

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