That Sinking Feeling

The threatening collapse of the financial institutions and people’s pensions tied up in the stock market has created a contagious sense of fear. A fear that is spreading its tentacles deep into the maritime industry with both the liner and the bulk sectors being hard hit. Shipping share prices have not escaped the market collapse, capitalisation is low.

The impact of a sharp decline in liner vessel capacity utilisation is leading to changes in operating networks has seen services dropped and vessels laid up on a voyage rotation basis. Ultimately as the overhang of new tonnage coming into the market comes about we will see more lay ups and probably new building cancellations as liner operators try to maintain their business and weather the storm. In the bulk sector charter hire rates have collapsed and ships are quietly slipping away into lay up to await better days. Shipyard cancellations cannot be far behind.

Carriers are warning that the next 18 months will be extremely difficult and most are trying to defend their market share positions leading to a continuation of declining freight rates. As volumes of cargo drop sharply, the ports and terminal operators will also experience negative growth rates and pressures on investments. The question will be whether all the players will survive this financial pressure.

Our worst fears are being realised. We have undoubtedly entered into recession and the possibility that a global depression raises its ugly head cannot be discounted. Even China, where over 55% of its GDP is dependent upon exports, primarily to North America and Europe, will be hard hit. Recovery will be slow; in the economic alphabet soup we are facing an “L” shaped recession, when it ends is not clear.