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The earthquake and tsunami that struck Japan in March 2011, and the subsequent nuclear scare, had a devastating effect on the Japanese shipping sector. Industries were hit and landside infrastructure was battered. Over the past quarter the Japanese ports sector has continued its recovery, and BMIs long-term view that there could be upside potential for Japanese facilities in terms of tonnage, if not container throughput, has begun to play out.

Both the countrys container ports, and its container shipping companies, however, are struggling. An excess of tonnage in the global container fleet has led to plummeting rates, while continued economic crises in the West threaten port throughput. Japanese shipyards are also beginning to feel the pinch as new build orders drop. Likewise in the landside freight transport sectors of road and rail freight, both of which have been seeing consecutive years of declines in volumes. BMI is project growth over the medium term, to 2016, but we expect it to be very sluggish.

Headline Industry Data

- Port of Chiba 2012 tonnage throughput forecast to grow 1.0%, with average annual year-on-year (y-oy) growth of 1.2% during our forecast period to 2016.

- Port of Nagoya 2012 tonnage throughput forecast to grow 4.5%, with average annual y-o-y growth of 4.8% over the medium term.

- Air freight tonnes 2012 forecast to grow 1.9%, with average annual y-o-y growth of 2.6% during our forecast period.

- Road freight tonnes 2012 forecast to grow 0.4%, with average annual growth of 0.3% to 2016.

- Rail freight tonnes 2012 forecast to grow 0.3%, with average annual y-o-y growth of 0.5% during our forecast period.

Key Trends And Developments

Global Air Freight Decline Continues, LatAm And Middle East To Continue Outperforming

The contraction in the global air cargo market continued for a fifth consecutive month in September 2011.

BMI does not see global air freight volumes recovering over the short term, with demand in the traditionally strong markets of the US and Europe remaining sluggish. Nevertheless, we expect volumes in Latin America and the Middle East to continue to outperform, as consumer demand in these markets remains resilient.

Japanese New Build Orders Dropping, Yards Try To Lure Orders Amid Steel Price Concern

Shipbuilders are feeling the bite from the overcapacity crisis, with lines keeping a close eye on their bottom lines and orders dropping. Japanese export ship orders fell y-o-y for the fifth consecutive month in September 2011. BMI expects yards to continue trying to lure orders by offering cheap credit and lower prices, and we caution that lines who have not been badly affected by the rates depression may continue to order, with worrying consequences for capacity.

Merger On The Cards

A consolidation of carriers that are all based in one country is something that BMI could easily see playing out, and is an option open to the three major Japanese container lines, Mitsui OSK Lines; (MOL), Nippon Yusen Kaisha (NYK Line) and Kawasaki Kisen Kaisha (K Line). Koichu Muto, the president of MOL stated that a merger between the three carriers could be an option, of course. At the moment there is no such discussion, but we should be flexible in every way.- we have roughly studied such a possibility of course.

Risks To Outlook

A major risk to our economic outlook comes from another collapse in external demand as seen in the height of the global financial crisis. This would come at the worst possible time for the economy, which is suffering from negative domestic demand growth. If both external demand and domestic demand fell sharply, the impact on Japans ports and shipping sectors would be highly negative.