By Susan Fenton
HONG KONG, Feb 6 (Reuters) - The slump in Asian trade could last into 2011, putting more shipping lines out of business and potentially aggravated by signs of rising protectionism, the Hong Kong Shippers' Council said on Friday.
Sunny Ho, executive director of the council, which represents exporters, importers and other shipping users, expressed shock at the pace of the meltdown in Asian trade in the past two months as shipments from major ports have skidded at double-digit rates.
"It's the worst we've seen in the past 20 years," Ho said. "I'm particularly pessimistic. I think we'll see a very sharp decline in Asian exports this year and negative growth in 2010. We might see some mild growth in 2011 but not back to levels we've seen over the past few years."
In Hong Kong, Shanghai, Singapore and other Asian ports, ships are now lying idle and loaded with empty containers as shipping lines use them as floating storage depots rather than pay to keep the containers in a depot.
Ho said investor expectations of a recovery in Chinese demand for raw materials, which has spurred a 30 percent surge in the Baltic Dry Index <.BADI> -- a measure of freight prices -- in the past two days, is premature.
"The Chinese recovery will be short-lived," Ho said. "Prices of raw materials have come down so much that China has started buying again. But, unless there is growth in demand for consumer products, then demand for these raw materials will not be sustainable."
Ho is much more bearish than economists who forecast Asian trade will pick up in 2010 as global fiscal stimulus takes effect.
Container throughput from Hong Kong suddenly slumped 19 percent in the final two months of last year while throughput via the Shenzhen port in southern China fell 11 percent as recession in the United States and Europe depressed demand for Chinese goods.
HARSH TERMS
China's economic slowdown means growth in Chinese consumption will not be strong enough to pick up the slack in global demand, although a massive fiscal stimulus by the government will help, Ho said. Overleveraged U.S. consumers, meanwhile, will have to save for the next few years and the U.S. downturn is already giving rise to protectionism, he said.
Last month the United States further tightened documentary and inspection requirements for U.S. imports of toys and other goods containing lead. Ho sees a proposed "Buy American" clause in President Obama's stimulus package as another ominous sign.
"We are concerned that more protectionism will come. This makes it very costly for manufacturers," he said.
Thousands of factories in southern China have closed as demand for consumer goods has declined. Weak sales in Western markets leaves Asian manufacturers with a rising risk of order cancellations and demands to prolong payment times from retailers and other customers whose finances are stretched, Ho said. That makes some manufacturers reluctant to accept orders.
"Importers in the U.S. and Europe are often asking for 60 to 90 days to pay instead of immediately on receipt of the goods," he said. "Prices are now so low, and the payment terms so harsh, that often manufacturers can hardly make a profit."
Slowing Asian trade is being aggravated by a weakening euro
Freight rates per 20-foot equivalent unit (TEU) between Asia and Europe have dropped to US$300-500 from US$1,300-1,500 a year ago, says Ho, prompting shipping lines to scale back services.
"In 2007, the Far East to Europe was the most profitable, and most promising, shipping route in the world. In the fourth quarter of 2008 the market evaporated," Ho said. A rising number of shippers are offering to carry cargo for free and only gaining revenue from handling and bunker charges, he said.
Senator shipping line, owned by South Korea's Hanjin Shipping <000700.KS>, said this week it was going out of business because of declining cargo demand. Ho expects more shippers to go bust.
"Medium-sized shipping lines are most vulnerable," he said. "The smaller ones can cut costs and react to changing conditions more quickly, and they tend to be specialised with niche markets." (Editing by Ken Wills)