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Shipping industry braced for storm to blow long and hard

Shipping industry braced for storm to blow long and hard

The global maritime industry is enduring hardships likely to affect it for ever.

Shipping industry braced for storm to blow long and hard - ACA World

The shipping industry is battening down the hatches for a global economic storm that could last years.

The slowdown in China, Europe’s anaemic recovery and the failure of other emerging markets to live up to growth expectations is having a devastating effect on the global maritime industry, which carries 65pc of the world’s trade.

One of the hardest-hit parts of the industry is container shipping, the movement of the ubiquitous steel boxes measured in 20ft equivalent units (TEUs) that transformed the industry in the 1950s by speeding up and simplifying international trade.

The strength of the headwinds faced was underlined recently when Maersk, the world’s biggest shipping line, reported a shocking set of financial results. Profits last quarter crashed 61pc to $264m (£174m) and revenue dropped 15pc to $6bn.

As a result of the poor performance, the Danish company announced plans to axe 4,000 of its 23,000 shore-based staff.

“It’s as bad as it’s been since the financial crash,” said Jonathan Roach, container market analyst at shipbroker Braemar. “This week I saw an 8,500-TEU container ship being chartered at an all-time low and a 4,250-TEU Panamax ship going for $6,300 a day, the lowest rate since 2009.”

 Shipping industry braced for storm to blow long and hard - ACA World

t’s not just container shipping that has been hit. The Baltic Dry index, a benchmark that tracks the cost of shipping bulk raw materials such as coal, steel and iron ore has tumbled to a near 30-year low. 

 

Prior to the crash, growth in global trade pushed up freight rates and shipping lines were ordering more vessels to meet demand. Events triggered by Lehman Brothers’ collapse changed that. Trade fell and freight rates collapsed. However, with ships that had been ordered entering the global fleet, capacity rose, yet without enough cargo for them to transport, rates remained suppressed. Normally, over-capacity works itself out of the market as older, less efficient ships that consume more fuel are scrapped, but a perfect storm of factors mean this has not happened at a sufficient rate to ease the problem. The slowdown in the Chinese economy has hit the shipping industry hard because of the impact it has on global trade. The country has a massive demand for raw materials, both for its industrialisation and to feed its manufacturers, who then ship their goods to Western markets.The problems are exacerbated by the global overcapacity for steel which is holding down the prices of scrap metal, meaning shipowners are reluctant to send ships to the breakers’ yard.

Finally, because the oil price is so low, fuel costs are suddenly less of an issue for ship owners.

“Ship owners are holding on,” says Jeremy Penn, chief executive of the Baltic Exchange, the London-based maritime information business. “The issue of scrappage is not such a big one when the oil price is lower, as relative economy of modern ships is less pronounced.”

It wasn’t supposed to be like this. At the start of the year, there were high hopes that the fortunes of the shipping industry would be on the brink of turning around.

However, the recovery failed to take place and Drewry, the shipping consultancy, has halved its projections for this year’s container trade growth to 2.2pc.

Clarkson, another consultancy, has revised its forecast down to 3.7pc. Compounding the problem is a 7.1pc increase in container ship capacity Clarkson is expecting this year, taking it to the fleet’s capacity of 21.9m TEU.

The opening of the widened Panama Canal next year will only add to their troubles, as demand for ships previously too large to fit through the waterway now have new routes open to them.

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