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.”
It’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.
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
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