TOKYO -- The global shipping market remains stuck in the doldrums, with a key freight index sinking to its lowest level on record in February.
Koichi Muto, president of Japanese shipping company Mitsui O.S.K. Lines, also known as MOL, painted contrasting pictures of the U.S. and China, the world's two largest economies. While demand for U.S.-bound cargo traffic remains solid, China-bound cargo traffic is slowing, he said.
Muto spoke to The Nikkei about the current state of the shipping industry and the outlook for the global economy.
Q: The Baltic Dry Index, which tracks freight rates for ships carrying dry bulk commodities, plummeted below levels seen in the wake of the 2008 economic downturn. What is your view on that?
A: Cargo movement is not bad. The primary cause of a decline in the Baltic Dry Index is an oversupply of bulk carriers. Speculative new shipbuilding orders in anticipation of resale profits have ballooned since the second half of 2013. As a result, the number of new large ships supplied will increase to about 150 this year from just under 100 last year. Global excess liquidity is continuing, making it more likely for speculative transactions to expand in the shipping market as well. The number of ships scrapped will increase to around 70 due to the slumping market, but it will take one to two years for the ship supply glut to be resolved.
Q: MOL is introducing very large ships. Is it doing so as part of efforts to cope with the slumping market?
A: The specialization and enlargement of merchant ships such as automobile carriers and container ships have been a trend for more than 30 years. Making vessels larger is aimed at cutting transportation costs. But I think the largest possible container and bulk carrier will have loading capacities of up to 20,000 twenty-foot equivalent units and 400,000 tonnes, respectively, for the time being.
Q: How would you assess transportation demand on main shipping routes?
A: In 2014, the volume of U.S.-bound container transportation rose more than 6% from a year earlier and the volume of Europe-bound container transportation also grew more than 7% year-on-year. As for the U.S. economy, there are some negative factors such as stalled shale oil development and a stronger U.S. dollar. But consumer spending in the U.S. is recovering on the back of lower gasoline prices. This year, the volume of U.S.-bound container transportation is expected to grow as fast as it did last year.
Meanwhile, while the transportation volume of some China-bound cargo such as iron ore is continuing to rise, the transportation volume of containers from North America to the Asian region, especially China, reversed direction and declined last year. Demand for consumer products in China is also sluggish. The Chinese economy is not as strong as it was in the mid-2000s.
Q: The labor dispute at U.S. West Coast ports dragged on this year, disrupting supply chains across the Pacific. What is your view on that?
A: Both sides involved in the labor dispute reached a tentative agreement in February. I think supply chains will become stable in one to two months. It is necessary to secure alternative transportation routes, such as those involving the East Coast of the U.S., in case of a similar situation in the future.
Q: There are also some other risks involved in maritime transportation, including pirate attacks and tensions in the Middle East. What is your view on such risks?
A: As for the issue of piracy in the waters off Somalia, a law revision was made to enable armed security guards to be deployed on Japanese-registered ships as well. As a result, pirate attacks have subsided there. But piracy incidents are increasing in West Africa's Gulf of Guinea. Such incidents are also rampant in Asia's Malacca Strait. We need to remain on alert.
The Middle East's Strait of Hormuz is crucial for Japan's supply chains, like carotid arteries for humans, as much of the crude oil and liquefied natural gas imported by the country passes through the strait. If that part of the supply chain stops, there will be serious effects on the lives of people in Japan, as well as on the Japanese economy. Even if the Strait of Hormuz is not blocked physically, ships could be warned of attacks sometime in the future. The Japanese government should consider adequate measures to cope with such a situation.
Q: What should be done to help the Japanese economy regain its strength?
A: With many Japanese manufacturing bases being relocated overseas, container shipments originating in Japan now account for less than 10% of our company's overall container shipments. Japan needs to strengthen its partnerships with other economies in the Asian region and boost the Japanese economy.
Interviewed by Nikkei senior staff writer Tomio Shida