The devastating earthquake and tsunami that hit Japan in Q111 left thousands dead and shattered the country's infrastructure. The ports worst-hit on the country's north-east coast were out of action for some months, causing liquid-bulk shipments to be rerouted and raising the possibility of congestion at those ports that remain operational.
Although major Japanese lines have seen stock prices badly hit, we see upside potential over the longer term for the country's shipping sector as raw materials are imported to support reconstruction and power plants and steel makers rebuild inventories.
Although Japan's shipbuilding infrastructure was not affected by the disaster, supply-chain disruption could result in delayed deliveries. The country's main ports are still operational, but we expect throughput to be affected. Wider supply-chain disruption is slowing production in auto plants in the US. We maintain our view that over the longer term that the country's shipping sector could be one of the sectors best placed to make a quick recovery as raw materials are imported to support reconstruction work, and power plants and steel-makers rebuild their inventories.
Japanese Prime Minister Naoto Kan survived a no-confidence motion in parliament on June 2 but only after pledging to resign after his government achieves certain progress in dealing with the post-earthquake and tsunami crisis. Kan is now expected to step down after the passage of legislation on reconstruction. Kan's immediate predecessor, Yukio Hatoyama, told the media that the prime minister ought to resign before the summer, implying that a leadership change could come within weeks rather than months. The no-confidence motion was put forward because of overwhelmingly negative public perception of Kan's handling of the crisis. However, even before the disaster in March, Kan had been facing heavy pressure to step down, with his popularity having fallen below 30% due to the weak economy. If anything, the earthquake and tsunami prolonged Kan's time in office.
Headline Industry Data
.. Port of Chiba 2011 tonnage throughput forecast to grow 0.81%, with average annual year-onyear (y-o-y) growth of 1.12% during our forecast period.
.. Port of Nagoya 2011 tonnage throughput forecast to grow 3.11%, with average annual y-o-y growth of 4.67% during our forecast period.
.. Air freight tonnes 2011 forecast to grow 1.5%, with average annual y-o-y growth of 2.3% during our forecast period.
.. Road freight tonnes 2011 forecast to grow 0.5%, with average annual growth of 0.4% during our forecast period.
.. Rail freight tonnes 2011 forecast to grow 0.21%, with average annual y-o-y growth of 0.33% during our forecast period.
Key Trends and Developments
More LNG Carrier Orders Placed As Demand Soars
BMI is bullish about the liquefied natural gas (LNG) shipping sector. Our view is shared by the world's largest LNG shipping company, Japan's NYK Line. Its managing director has stated that the company may increase the size of its fleet in light of recent developments in the sector. BMI notes, however, that there is no such thing as a sure thing in global shipping. LNG shipping has excited and disappointed in equal measure in the past, and may yet do so again.
Natural Disasters Affecting Aerospace Supply Chains
The earthquake and tsunami that hit Japan in March had a detrimental effect on aerospace supply chains, according to the analyst Frost & Sullivan. There is the very real possibility that the devastation caused by the natural disasters could seriously impinge on aircraft manufacturers Boeing and Airbus.
Risks to Outlook
The earthquake and tsunami that hit the north-east of Japan in March obviously presents considerable downside risk to our forecasts, as the country's infrastructure has been shattered as a result. Over the medium term, however, we believe this risk could turn out to be a positive. Extensive reconstruction efforts will see the country importing and transporting massive amounts of raw materials, ensuring plenty of cargo for freight carriers. Power plants and steel makers restocking should also ensure that there is plenty of cargo to go around.
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