A couple of weeks ago, The Economist magazine revealed there were more than 1,000 ships of all kinds, but especially container vessels, oil and other tankers, car carriers and some bulk freighters, anchored around Asia and Europe, not working, resting, costing thousands of dollars a day each to be maintained, just waiting to be called back into service.
It’s no wonder.
In the past fortnight or so, some of the world’s biggest shipping companies, especially those in the container trade, have reported absolutely poor interim and quarterly financial results, with several being bailed out by shareholders and or banks with big capital injections.
The situation in shipping, especially container vessels, underlines the weakness of the current thinking about the strength of the economic rebound in China, the US, and other major economic regions.
The strength of the recovery in the US was called into question overnight with a surprise fall in retail sales in July, and the 5th fall in a row in so-called core sales, which consists of consumer goods, excepting cars, food and petrol.
Until most of these thousand or so vessels are back working, the global economy will not grow, economies will not have a sustained recovery, unemployment will remain high and growth will be fitful and weak.
Many of these ships are manufacturing, or rather export-related. They were built to handle the flood of products from manufacturing Asia to consuming America and Europe.
With that in mind, its should be of no surprise to learn than some of the world’s biggest container and shipping lines in Asia have reported huge losses of up to and over half a billion dollars for the first six months of 2009 because of the trade slump.
China’s July exports may have ‘improved’ to be down 23% on a year ago, and imports may now by around 14% lower than they were a year ago, but they tell very different stories.
Much of China’s imports are carried in bulk carriers of immense size, huge iron ore and coal ships of 100,000 to 300,000 tonnes, huge oil tankers, and some container vessels carrying parts and semi-finished products from Japan, Korea, Vietnam or Taiwan.
Much of China’s exports, and those from Japan, Korea, and Taiwan are carried in container vessels, some the largest the world has so far seen, plus car carriers.
That so many container vessels remain at anchor and unwanted, tells us more about the state of world trade and demand for many of the manufactured products of Asia (and Europe and the US) than anything else.
World trade will be down a record 12% this year and according to Lloyd’s Marine Intelligence Unit, nearly 10% of the world’s merchant ships are unwanted at the moment thanks to that collapse in trade.
But world trade has stopped falling: Japan’s exports are doing better, thanks mostly to China, as are Taiwan’s and South Korea’s. America’s rose 2% in June.
However, it remains a long way from last year or 2007.
The Baltic Dry Index, a quoted measure of shipping costs is up, but that’s thanks to the surge in dry trade tonnage, such as iron ore from Australia to China.
The Baltic Dry Index is a composite measure of the cost of shipping bulk cargoes such as iron ore and coal, fell by over 90% between June and October last year, and although it has recovered, it’s only around 25% of its peak, thanks to the surge in iron ore imports into China (a record 57 million tonnes in July).
All this is of little use to the stricken general trade.
World trade won’t emerge from the current slump for a good year or more, not until consumers in the US, Europe and other countries rediscover their taste for manufactured goods.
But with US consumer spending weak, consumer credit falling more than it has done at any time since the war, don’t expect the American consumer to repeat their buying spree from 2001 onwards.
According to The Economist article, plus other comments by major ship owners, shipping capacity will exceed world trade by 20% to 30% for some time.
Getting rid of that will be one of the big ‘deleveragings’ the world has seen so far in the current slump.
The container trade is tied into the idea of globalisation more tightly than bulk carriers.
The Just In Time logistics and supply chains have driven huge gains and efficiencies for businesses large and small across the globe, and much of their finished product and its parts have been carried on container ships from Japan, to China or India, to Europe, to the US, Australia or to those countries from Vietnam, Singapore or Taiwan.
Thanks to the recession, those supply chains are busting, the need for Just In Time is not as important when sales slow or plunge.
The erosion of trade finance, the disappearance of letters of credit and the increase in the cost of trade finance has also played a part, and continues to drive trade back to more local, in country systems.
The Economist reported: "Shipping companies that operate the main container services linking Asia, America and Europe will lose about $US20 billion this year, after making only $5 billion profit in 2008, according to Drewry.
"To blame is a $US55 billion fall in expected revenues, only partly offset by savings from lay-ups, “slow steaming” to conserve fuel and opting for the longer and cheaper route round the Cape of Good Hope, which avoids hefty fees for using the Suez Canal.
"The canal faces a drop in revenue of 14% this year. Container rates have tumbled: before last summer it cost $US1,400 to move a container from China to Europe; today the rate is barely $US400."
That last fact is the core indicator for
