There are so many aspects of shipping performance, all mostly negative, that are being pointed at as benchmarks to point at the economy as going to hell. Indeed, many of the problems cited (profitability, usage rates, etc.) all point at serious trouble ahead, and nothing I've seen negates that... but I'm trying to get a sense of what the causes and effects are, and many of these benchmark issues are, in my opinion, mitigated, or are in fact only the result of other issues which are of equal or greater importance, yet don't make the news. The end result is that my own views are muddy as hell, and the causes and effects of the utter dumpster fire that is bulk shipping is in fact a far more complex issue than one simply of 'the economy is bad.' I don't know that it's appropriate to use the decline in shipping profitability as a measurement of the economy as a whole, not when so many of the troubles specific to container trade and bulk carriage companies seem to be weighted towards matters of the chickens coming home to roost rather than there just being less trade.
This would be a hell of a dissertation for a student of economics, by-the-by. inthay inthay
Container shipping is undergoing a series of changes that are challenging the industry- changes in the economies of scale, China's recession, way too many ships and changing nature of shipowners, just for starters.
Ships are getting bigger, the Panama Canal expansion is almost complete, and some US ports are dredging channels, buying bigger container cranes and raising air drafts of their bridges so that larger ships can get in. There are just a shit-ton of ships available to carry containerized cargo, and, because the liner services are upsizing their ships so rapidly, the resale value of large (by 2010 standards) container ships is in the toilet, as there's just no demand for them, so large container companies now have their assets parked in places where they can't be rendered liquid, at a time when liquidity is needed to keep up with the times.
I'm not 100% sure of what this will mean down the road, but it looks grim. Mitigating actions like slow-steaming in response to high fuel costs helped, but now that fuel is cheaper than cat food, slow steaming is no longer a cost-savings hedge. Thus far, looky-loos like me haven't seen any new cost-savings tools in our glimpses in the toolbox, but no telling what that means. The big players are big players because they're good at this shit.
China's recession is another giant question mark here. With demand for goods already flattening out here in the West, and the fun-money environment of US dollar movement caused by Quantitative Easing making China's economic policies even more typically Chinese (to call it...enigmatic is the height of understatement), it's well beyond my amateur ability to say what will happen, except that China and the Fed are giving each other the hairy eyeball, waiting for the other to do something a little more concrete bout all this instability. Thus far, the practice of pretending there isn't a Sword of Damocles over the US dollar has, in typical maritime fashion, been pretty effective and pervasive, and now that China has Issues, maybe that means two swords up there.
Still, I anticipate that shippers will continue to do what they always do; find a way. Shippers in socialist nations like the EU can anticipate having subsidies and bailouts, as they often do, although US interests probably will not.
... and this brings up an interesting tie-in between container and bulk shipping. Who owns the damn boats is a pretty good indicator of whether or not they'll be under current management in the future anyhow, especially given the shitty economy. There are shipping companies and there are companies that own ships.
|Bulk carrier- carries bulk stuff, obviously. Self-unloading bulkers are common and carry cargo in holds under hatches.|
|An 'average' sized liner container ship, made to fit through the Panama canal|
|A modern large container ship. Already dwarfs ships made just 5 years ago|
There are some old names and old companies in container shipping. Not as storied or long-enduring as as the tanker companies, but the major players have been in business and owned ships across multiple generations. There are also smaller shipowning companies that are investment instruments owned by hedge funds, banks and other investment funds. These ships tend to change hands quite a bit, and often get managed right into the ground, which may or may not be an intentional strategy by the owners. This has consequences across the industry too, of course, and these groups, who were until recently a good source of potential buyers of ex-liners and such, play by their own rules. As I mentioned, running a shipping company into bankruptcy and dissolution of the company happens sometimes,and is one strategy to convert troubled assets and instruments into liquid form as a tax advantage. Making money by losing money. What a world. Still, that kind of economic gamesmanship makes me VERY hesitant to think that container shipping can be used as a benchmark for gauging the state of the economy. The numbers are far too nebulous and have already been manipulated and massaged so as to be unrecognizable when compared to raw data.
Now, bulk shipping is another shit show, and that will be part 3, and the final part.