This is a very insightful article about global shipping and the current situation that is causing many shipping companies to go under. The boom in shipping was all based on U.S. and European consumers and when they stopped consuming, the container industry has gone bust. From ship operators to ship building companies, they are all feeling the pain. Although they hope things will improve by 2012, there are no guaranties. The shipping companies have orders for new ships that would increase world capacity by 50%, yet shipping is down so significantly that 10% of the entire fleet is now idle. Those that are operating are doing so at a loss and not fully loaded. Just what will it take to get the people of the world feeling rich enough again to start buying goods? This is the major question one must ask. The world economy was driven by credit and most everyone is tapped out. It will take as much as 20 years for consumers to pay down the debt to levels of just 10 years ago according to economists.
This is a long article and I have excerpted the highlights below. well worth reading.
From Spiegle Online International
Shipping Industry Fights for Survival
By Alexander Jung, Thomas Schulz and Wieland Wagner
The
global economic crisis is wreaking havoc on shipping: Demand and prices
have collapsed and ports are filling up with fleets of empty
freighters. The crisis has fueled cut-throat competition and not all
companies will survive.
Until not too long ago, shipping was both the greatest beneficiary and hammering pulse of globalization, moving goods around the world at an ever-increasing pace. The industry has been growing rapidly from year to year, ever since China became the world's factory. In 2008, roughly 500 million standard containers (TEU) were transported on the world's oceans -- twice as many as at the turn of the millennium.
Year after year, new and ever more massive ships were built, ports were expanded and new scheduled service introduced. The cargo capacity of the world's combined container fleet increased from 4 million TEUs in 2000 to 12.5 million today.
But now the global financial and economic crisis has stifled the boom in container shipping, and it has happened almost overnight. For the first time in its history, the industry has stopped growing and, in fact, is shrinking. In the first six months of this year alone, the shipping industry declined by close to 16 percent.
Graphic: A Decline in Shipping
The new giant ships are now much too big for the cargos they transport by sea, and often they sail half-empty -- if at all. Billions are being spent to expand ports to handle a boom that no longer exists. Leading shipping line operators are on the verge of bankruptcy, as are shipping banks and charter shipping companies. The industry, once one of the biggest beneficiaries of globalization, now threatens to turn into one of its chief casualties.
Drewry Shipping Consultants, the world's top consultant to the industry, warns: "The industry is looking at the edge of a deep abyss." And industry publication Lloyds List writes: "Container shipping was thrown into a full-scale panic."
Although the shipping industry has always gone through cycles, shipping companies now believe that things have changed drastically, and for the worse. "There was never a shortage of cargo in the past," says Kranich. But that's no longer the case today. Because of declines in consumption in the West and production in the East, the global container fleet's enormous cargo capacity can no longer be filled. The resulting sharp decline in prices means that almost all shipping companies are generating substantial losses.
Efforts by shipping companies to raise prices have been as desperate as they are ineffectual. Officially, at any rate, shipping line operators recently raised the fees they charge for service between Asia and Europe by $500.
However, higher rates have little effect on consumers and producers, because the costs of maritime transport hardly enter into the calculation. It costs $10 to ship a TV set from Asia to Europe, while shipping a vacuum cleaner costs $1 and a bottle of beer 1¢.
The invention of the container made such prices possible in the first place. Nothing has advanced globalization more since the mid-1980s than the boom in these steel boxes. China's rise to global economic power would be inconceivable without containers. The more shipping costs declined, the more it made sense for Western companies to outsource production to faraway parts of the world. "Chinese factories rarely have warehouse capacity," says Kühne + Nagel executive Lange. "They often produce directly in the container."
A Glut of New Ships
But the real problems are still ahead for German shipping companies. The 1,550 new ships that were on order in mid-2008 are to be delivered in the next few years. The major Asian shipyards are unwilling to accept cancellations.
Some ship financiers have already decided to forfeit down payments already paid to the shipyards, which can amount to up to 40 percent of the total price, because they lack the additional millions needed to take delivery of the ships on order. Most others are trying to negotiate with the shipyards to at least delay construction, in the hope that the situation will improve significantly in a few years.
The orders for new container ships now on the shipyards' books represent a total capacity of 5.3 million TEUs, or about 50 percent more than current worldwide container fleet capacity. Even if global trade recovers by next year, this glut of new ships will create enough excess capacity to depress shipping prices.
To reduce loading capacity, ships are already being decommissioned today, and they now lie at anchor, unused, in ports, estuaries and bays around the world.
There is little evidence of a recovery in the port of Charleston, South Carolina. There is only a single ship, the MSC Prague, docked at the wharfs in one the biggest ports in the United States.
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