Businesses monitor Hanjin crisis as likely trade hump

Business groups are monitoring the developments on the global front, as several indicators point to trade prospects on a downturn that could aggravate problems in the international container-line industry, especially with the collapse of South Korean giant Hanjin Shipping Co. Ltd. 

The Asian Development Bank (ADB) said in its Asian Development Outlook (ADO) Update that among the threats to a sustained economic growth in the Philippines this year would be a weaker-than-expected demand from major markets for local exports.

In the ADO Update, ADB raised the forecasts for gross domestic product (GDP) growth this year to 6.4 percent from its March projection of 6 percent. But for 2017, growth is seen to dip slightly to 6.2 percent although still above the previous forecast of 6.1 percent.

The World Trade Organization (WTO) also reduced its global trade forecast, issuing a warning that anti-globalization rhetoric and Brexit were pushing trade growth to its slowest pace since the financial crisis.

The WTO said that global trade was now estimated to expand by just 1.7 percent this year, compared to its April projection of 2.8 percent.

The new figure is also a far cry from the year-ago projection that trade would swell by 3.9 percent this year.

WTO said growth in trade had fallen to its slowest pace in around seven years when the global financial crisis hit.

It warned that “creeping protectionism,” coupled with lacking trade liberalization and perhaps the growing role of the digital economy and e-commerce might help explain the recent declining ratio of trade growth to GDP growth.

The think tank Economic Intelligence Unit (EIU), for its part, said the recent news on the fall of Hanjin Shipping, the world’s seventh-largest container line, was an evident sign that the industry has hit a crisis point, and a massive transition would be needed to turn industry profitability around.

Currently, however, the Hanjin Shipping debacle has still little effect on the Philippines’s trade since local exporters said they do not extensively use Hanjin vessels. But a study done by SeaIntel, cited by the EIU report, showed an instant capacity reduction of 6 to 8 percent on trans-Pacific trade and a 5- to 6- percent reduction on the Asia-Europe trade as a result of the debacle.

Still, major port operators International Container Services Inc. (ICTSI), which runs the Manila International Container Terminal Inc., and the Asian Terminal Inc., which oversees South Harbor, said Hanjin Shipping had little operations in the Philippines.

“Hanjin has major stakes in ports of Busan and Osaka, which will most likely see high-capacity disruptions, and impaired profitability, as these ports will lose their ship calls from Hanjin,” according to the EIU report.

It added that some ports have also already denied access to Hanjin vessels, amid fears that the company would not be able to pay the fees to dock and store its containers, leaving most of Hanjin’s ships stranded at sea.

The company’s financial woes can be traced back to the financial crisis in 2008, which severely hampered global growth and trade and had a knock-on effect on the shipping industry, which lost an estimated $15 billion, the report said.

“The crisis surrounding Hanjin highlights the severity of the container-shipping industry’s slump, which is experiencing its deepest and longest downturn in over six decades. This year itself, major container shipping lines have seen operating profits plunge, with earnings being exceptionally volatile,” the report noted.

A study done by credit watchdog Moody’s Investors Service also indicated that consistent fall in profits and poor economic climate will drive expectations of a negative outlook for the shipping industry over the next 12-18 months.

“The industry is further imperiled by record low freight rates. The Shanghai Containerized Freight Index – a measure that reflects the movement of freight rates across the export market – dropped to a record-low since it was first introduced in 1998,” it added.

“The industry must undergo significant changes to address its underlying problems, otherwise the scale of Hanjin’s bankruptcy may be the first of many more to come in the industry,” the