Shipping in Crisis!

Do you remember listening to the shipping forecast on the radio? It was like a foreign language. Today, the language of the global shipping industry is crystal clear – things are grim with a capital G… As you commute to work in the train or the car you probably don’t give much thought to shipping containers. Those big rectangular boxes that you see stacked up in ports and on the deck of massive cargo ships have an important story to tell. They’re the modern day Silk Road. The main means by which global trade and commerce gets delivered. And the story they are telling us today is not pretty. Almost everyone that you’ll hear spouting off about the state of the world’s economy has some sort of agenda. Usually that involves talking up a situation to make you believe that everything’s hunky dory and under control. But there are some raw statistics that we can use to cut through all the hot air and get to some facts that tell us the real story. One such is shipping rates. What people are paying to hire container ships to deliver their goods around the world. Before the financial crisis oil tankers were fetching a hundred thousand dollars a day. Now, they regard ten thousand collars as a good pay day. There are specialist brokers in places like Singapore that negotiate these rates between producers and fleet owners. And their bonuses have not been spectacular for much of the last decade. As with all commodities, the good times in the early part of this millennium led fleet owners to lay down more and more new container ships. Everyone thinks the growth will keep coming forever and invests accordingly. So, just as the financial crisis started to impact world trade eight years ago, scores of new ships came online. The inevitable result? A crash in hire rates and lots of ships moored idle in places like Singapore and Gibraltar. China’s move to a services led economy has exacerbated the problem, while the anaemic growth in Europe is nowhere near enough to take up the slack. The impact on margins can be seen from sector leader Maersk. Its recent numbers showed a fifteen per cent drop in revenue but a massive sixty one per cent decline in profits. The inevitable result? Four thousand job losses from its twenty three thousand strong onshore workforce. Things are no better in the non-container based shipping world. 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 thirty year low. Volatility in the currency markets also impacts shipping, with the Euro falling against the Chinese Yuan during twenty fifteen making imports more expensive. That may reverse this year as the Chinese authorities finally start to allow some devaluation of their currency, but some serious damage has been done since the financial crisis. Another culprit is the oil price crash, heavily impacting countries like Russia that depends on oil exports for much of its income. The German port of Hamburg, famous for its Reeperbahn where the Beatles once had a residency, saw its trade with Russia crash thirty six per cent last year as Russians cut back on imports of German cars and heavy machinery. It’s hard to avoid the conclusion that global trade really is slowing down when you look at any metrics connected with the shipping industry. It’s global. It has no central banks or politicians controlling its data. And it’s in crisis. If you believe what the politicians are saying about everything being under control and nicely on course, be very careful out there!