Overseas sales of China-made toys and other products are falling
China Shipping Container Lines Co. forecast traffic will decline for the first time in at least four years as the global economic slowdown and a stronger yuan curb demand for Chinese-made toys, electronics and clothing in North America and Europe.
''Traffic will drop at least 10 percent for the full year,'' Zhang Denghui, assistant president of China Shipping (Group) Co., parent of China Shipping Lines, the country's second-largest container line, said in an interview yesterday.
''An even much larger drop is possible, as the full impact of the global economic turmoil is yet to come.''
Overseas sales of China-made toys and other products are falling as the U.S. slips into recession and other economies slow down. The yuan's 6.9 percent gain against the dollar this year has also forced some domestic manufacturers to stop production for export, reducing orders for containerized traffic.
''A drop in container traffic is unavoidable as the economy slides,'' said Roslyn Ji, an analyst at Core Pacific-Yamaichi International Ltd. ''There's no way for the shipping lines to bypass this slump, both in traffic and share prices.''
China Shipping Container Lines fell 2.9 percent to HK$1.02 in Hong Kong trading today. The shares have dropped 78 percent this year.
China Shipping's container business is about breaking even as some profitable routes make up for losses on others, Zhang said. Overseas routes account for more than 70 percent of the company's container capacity.
Orders have dropped on North American and European routes in the past two months starting August, Zhang said. Traffic on lines from China to Australia and South America remains stable, he said.
''It isn't practical to cut services even when orders fall, as we can't afford to lose clients,'' said Zhang. ''It's a big challenge for our credit lines in this capital-intensive industry.''
China Shipping and China Ocean Shipping Group Co. handle a combined 16 percent of China's containerized exports.
The rates for moving commodities like coal may also fall next year, according to Zhao Yingtao, general manager of China Shipping's Transportation Division.
The company will start negotiations next month with commodity producers to set annual fixed rates. Shipping rates for coal transport increased by 40 percent this year from 2007, according to Ji.
The Baltic Dry Index, a measure of rates for carrying iron ore and other commodities, has dropped more than 80 percent this year.