The Baltic Dry Index which measures shipping costs to transport raw materials by sea, is a key indicator for evaluating future economic activity. While it has been declining in the past two months, suggesting more supply than demand, it is still more than 10% higher year-to-date.

Although shipping companies have not had the best of times, many of them have focused on enhancing cost management and operational efficiencies. This strategic move could help position them for a faster recovery when the industry recovers.

Earlier in the quarter on 26 April 2013, Yangzijiang Shipbuilding’s Executive Chairman, Ren Yuanlin commented that “the shipbuilding industry has been in a downturn for some time now, and he believes that they have hit the trough as they recently saw signs of renewed activity within the industry. As such, the group has been actively engaging interested ship owners in the hopes of winning new orders in the near term.” He also believes that when the shipping industry recovers, Yangzijiang will be in a strong position to capitalise on opportunities that arise.

Neptune Orient Lines, the largest shipping and logistics company listed on the Singapore Exchange, recently reported first quarter earnings on 14 May 2013. Looking ahead, NOL’s management has pointed out that, “The container shipping industry remains saddled with overcapacity so, the group will continue its focus on cost efficiency, yield and capacity management. Barring any unforeseen circumstances and if freight rates do not deteriorate, the group remains on track to deliver a better performance than in 2012.”

Cosco which has been an early mover in the offshore marine segment among Chinese shipyards has the benefit of being a leading player after years of experience and expertise. Like NOL, the group recognizes the increased competition in these recent years. When announcing their 1Q2013 earnings on 3rd May, the group said that it is “cautious about the outlook in 2013 after taking into consideration the state of the global economy”. Cosco will brace itself for more difficult and challenging conditions going forward but the group believes that it is well-positioned to meet customers’ expectations.

Source: Macquarie Research - 10 Jun 2013