Container Shipping Riding Choppy Seas

Container trade is entering rough waters, despite the strength of global supply chains and China’s status as the world’s factory.  According to AXS Alphaliner, a container shipping information service, 15 percent of shipping capacity will be idle by October — thanks primarily to the recession.

Shipping companies that link Asian workshops with American retailers are forecast to lose about $20 billion this year after earning $5 billion in profits last year.  Drewry Shipping Consultants reports that the reason is a $55 billion shortfall in expected revenues, only partly balanced by savings from lay-ups, slow-steaming to conserve fuel and opting for the longer but less expensive trip around the Cape of Good Hope to avoid using the costly Suez Canal.  The canal is facing a 14 percent decline in revenues this year.

Container rates have fallen from last summer when it cost $1,400 to move a container from China to Europe.  Today, shipping that same container costs just $400.  Chang Yung Fa, head of Taiwan-based Evergreen, the world’s fourth largest container company, says there is over capacity.  In addition to dropping plans to order new ships, he is getting rid of some of his 176-ship fleet.

Container shipping’s grim outlook reflects a deeper concern than the recession.  Containerization encouraged globalization by cutting the cost of shipping goods so deeply that manufacturers could find the lowest-cost factories possible – no matter the location.  In response, the amount of sea transport soared.  The concern with over capacity is overstated, I believe.  Recent economic news, heralded by Alan Greenspan, show that inventory levels have been eroded because of the cut in production.  While the recovery will be slow, the rebound in the equity markets will boost consumer spending which will affect trade.  While we are sure to see more efficient supply chains, distribution is poised for a comeback.