A month ago Mfame talked about Perfect Economic Storm that Scrapped Dry Bulk Shipping, today we present a view on yet another perfect storm that’s brewing in the shipping industry.
A combination of factors such as oil glut resulting in price volatility, waning global growth resulting in a glut of supply in ship capacity, Chinese economic slowdown etc resulted in brewing a ‘perfect storm’ affecting shipping industry from all fronts.
Nearly 90% of the world’s trade is transacted by sea, so when demand goes down it shows upon the bottom lines of the shipping companies around the globe.
“The market now [in China] is looking different than what we were used to, which was double digit growth,” said Ludovic Renou, general manager for southern China at the French shipping conglomerate CMA CGM. “Shipping is a kind of barometer of the world economy — we feel it straight away.“
The Shipping Woes:
Analysts warn not to get carried on in recent surge in Baltic Dry Index, since meaning recovery from it hitting an all-time low last month has not started and shipowners have a chance at pulling a profit.
World’s biggest shipping company, A.P. Moller-Maersk(AMKAF), posted huge losses. This resulted in the company slashing at least 4,000 jobs and reducing vessel capacity.
Over supply of ship capacity and the strategy by shipping industry in building bigger vessels to increase profits backfired, as the extra competition actually forced down prices. Ships are now lying idle in international ports, empty and waiting for cargo.
“The growth of container business is not keeping up with the growth of container fleets,” said Velibor Krpan, a ship captain for CMA CGM.
China not only is the biggest exporter of goods on ships but, being the world’s second-largest economy, also imports a lot. Hence the recent reports of chinese slowdown both in export and import terms has a huge impact on shipping industry.
Drewry, a global shipping consultancy, expects the decline in shipping industry to continue through next year.
Strategies to overcome the existing challenges in the sector:
- Even though hard times are ahead reducing overcapacity may offer some relief. Drewry suggests some “drastic” measures such as decommissioning half of the industry’s ships.
- Mergers and buyouts could help the ailing container shipping industry. China has merged its two largest state shipping lines and Japanese liners Hanjin Shipping and Hyundai Merchant Marine look to be doing the same.
- Maersk Line to increase Asia-Europe shipping rates in an attempt to inject some energy into the market. Still the market is the deciding force on the level of freights rates.
- Shipping lines may appreciate cost savings from so-called mega-ships, but for those who sail them, bigger ships can mean bigger risks. Mega ships gets costlier to operate in the days to come and their numbers slowly will reduce in future, thereby reducing overcapacity.
Disclaimer: This video is intended for informational purpose only. This may not be construed as a news item or advice of any sort. Please consult the experts in that field for the authenticity of the presentations.
Source: CNNMoney
Quote..
“two largest state shipping lines and Japanese liners Hanjin Shipping and Hyundai Merchant Marine look to be doing the same”
…Unquote.
Last time I checked Hanjin and HMM were S. Korean Liners and not Japanese