CONTAINER shipping has become the hardest hit part of the global maritime industry which is enduring hardships likely to affect it for some time.
The economic slowdown in China coupled with Europe's anaemic recovery and the failure of other emerging markets to live up to growth expectations is having a devastating effect on the shipping industry, which carries 65 per cent of the world's trade, The Telegraph reported.
The situation has become so bad and 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 61 per cent to US$264 million and revenue dropped 15 per cent to $6 billion.
"It's as bad as it's been since the financial crash," said container market analyst at shipbroker Braemar, Jonathan Roach. "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."
The situation hasn't only affected container shipping. 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.
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.
"Ship owners are holding on," says chief executive of the Baltic Exchange, the London-based maritime information business, Jeremy Penn. "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 2.2 per cent.
Clarkson, another consultancy, has revised its forecast down to 3.7 per cent. Compounding the problem is a 7.1 per cent increase in container ship capacity Clarkson is expecting this year, taking it to the fleet's capacity of 21.9 million 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.
Faced with such troubles, shipping lines are changing tack to deal with the problems, with some attempting to grow their way out of the troubles through merger acquisitions and forming alliances.
Back on shore, the impact of the shipping's troubles are being felt. While the UK is no longer a major force in shipbuilding, the City remains the global maritime hub, with the bulk of contracts and cargoes negotiated in London, which remains a favoured centre for legal and insurance matters.
About 75,000 UK jobs are supported by the industry, and the storm at sea is already being felt in London.
"There's been a slow burn of difficulties, bankruptcies and consolidation," said Mr Penn. "For example, if you're a broker working on commission and rates are far below what they were, you're still doing the same amount of work for far less money."
While customers might benefit from cheaper rates, the long-term impact is unclear. It could take decades for excess capacity to be matched by demand, while the giants of the industry could squeeze out competitors and begin pushing up rates.
Either way, the future is unlikely to be smooth sailing.
WORLD SHIPPING
17 November 2015 - 21:46
Shipping future is unlikely to be smooth sailing: analyst
CONTAINER shipping has become the hardest hit part of the global maritime industry which is enduring hardships likely to affect it for some time.
WORLD SHIPPING
17 November 2015 - 21:46
Shipping industry's hardship to go on for a while: analyst
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