China's has the world's fastest growing economy, having recently eclipsed Japan's to be the second largest after the US. In August, China's statistics bureau and its central bank recorded a 14% year-on-year rise in industrial production, with retail sales and bank loans exceeding estimates. The International Monetary Fund expects China's ecomony to increase 10.5% in 2010.
While China's manufacturing output and the relatively low yuan fuels its exports, China's mills, refineries, factories and consumers stoke imports of raw materials and retail goods.
China's rising demand was anticipated and reported in our last issue (click here to read). However the quantum of demand is nonetheless surprising. China gained 44% in imports by value with exports rising 41%, compared to Q2 2009. The Baltic Dry Index, the primary measurement of the rising cost of shipping commodities such as iron ore, cement, grain, coal and fertiliser, climbed 40% in August, its 12th successive advance and the highest since June of this year. Retailers in other parts of the world enter into bidding wars to secure cargo space on ships from Asia, paying up to 3 times the cost of 2009 freight rates.
Half a year ago, WTO Secretary-General Pascal Lamy described the decline in global trade to be the sharpest since the end of the Second World War. The latest 2nd quarter results released by the World Trade Organisation show a 25% increase in the value of world merchandise trade. Compared to the same period in 2009, global exports increased by 26% and imports, by 25%. This had led Lamy to optimistically declare the end of the world's crisis, thanks to China and other drivers of trade such as Russia, Brazil and India. New austerity regimes imposed in Europe, the expiry of economic stimulus measures in the US and lingering joblessness mean that the increases were more modest for the US and Europe.
These promising Chinese figures also bode well for countries in the region with active shipping and maritime sectors, such as Singapore. Two companies in particular, a ship owner and a shipyard, have started expansion plans. Shipping and logistics company Neptune Orient Lines announced plans to buy 12 container ships at a cost of about US$1.2 billion. The group explained its investment in the vessels 'to meet future growth needs and to replace vessels with charter agreements that will expire in the next few years'. Singapore-listed, China-based Yangzijiang Shipbuilding (Holdings), which recorded a 32% increase in net profit for the three months to end June 2010 compared to the same period in 2009, said the group is embarking on another growth phase and intends to explore mergers and acquisitions as the marine industry consolidates.
As for Singapore's port business, comparing the period between January to August this year with the same period in 2009, container throughput grew 13%, bunker sales rose 12% and vessel arrivals tonnage increased by 8%.
Despite these figures, and as anticipated, Shanghai has overtaken Singapore as the world's busiest container port. Between January and August 2010, Shanghai handled 19.06 million twenty-foot-equivalents (TEUs) while container throughput for Singapore was about 19.01 million, according to the Maritime and Port Authority of Singapore (MPA).
Maritime analysts though point to the difference in the basis of growth for each port. Shanghai's port business is driven by the mainland's demand for imports and exports, and is the major entry point to the country's hinterland. Singapore on the other hand, is a transhipment hub, where large ships stop on the Asia to Europe trade route to load and unload cargo to smaller ships, and with less than 20% of port container throughput entering inland.
Observers predict that Shanghai's growth will not be at the expense of Singapore and high shipment volumes will continue with efficient resource management to provide maximum connectivity with minimum costs and government policies to ensure that Singapore remains a global node for manufacturing and logistics.
One recent positive result of these policies is AP Moller Maersk's announcement that it will register more than 30 newbuilds, more than half of its 58 new ships, in Singapore over the next 3 years. Bjarne Foldager, Managing Director and Head of Crew Management, based the decision to add to the 77 vessels already registered here to Singapore's "safe and good quality shipping".
Vessel owners have to adhere to stringent safety rules. They have to also provide regular inspections of their vessels, equipment and crew as well as safety and pollution prevention documents.
Vessel owners are nonetheless drawn by the government's able delivery on promises, such as favourable taxes and other incentives, which grow Singapore's port operations. Singapore is one of the top 10 largest registries in the world, with 3,920 registered vessels, totalling 47 million gross tons as at August 2010, according to the MPA. This growth encourages P&I Clubs, classification societies and ship specialist banks and law firms to establish here, adding to Singapore's status as a maritime hub.