Monday, June 10, 2013

How Long Before Recovery in International Shipping?

I was always told that international shipping had one of the longest business cycles out of all types
of industries.   I never experienced this myself, as apparently the last really bad downturn was
in the 1960's, and I'm a bit old, but not that old.

I guess we are in the 5th year of the downturn, and many people have said there is a 7
year business cycle, which would mean 2 more years of tough times.  Of course, one
cannot know for certain (for if I did, I would be quite wealthy!).

Carriers want to continue replacing old ships with new, bigger and more efficient tonnage.
The scrapping rates of older tonnage has increased a bit, but the carriers have been a bit
too optimistic, expecting business to pick up at a brisk pace (rather than picking up at a slow
pace).  So once again the carriers have shot themselves in the foot, have too much space,
and now they find it difficult to raise rates up to levels which are required to make a profit.

Some carriers are looking for financing for new ships, which I expect will be difficult to come
by.   Only the carriers with their own money, or ones who are secure enough to issue their
own bonds  will have the funds for new buildings.   But, considering charter rates are
once again quite low (rumours of 10,000 TEU vessel chartered at USD 6,000 per day),
the benefit of new buildings is reduced.

This continued downturn will force carriers to become more efficient, as when times are
tough, they must trim the fat.   It would be really nice if the carriers would take this time
and invest and implement extremely efficient computer systems, but so far everyone is
pretty much stuck with their 1970 computer systems.  

Perhaps Federal Express will buy an ocean carrier, and really shake up the industry.

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