The shipping industry is taking a beating.
As The Wall Street Journal reports, about 1,000 ships capable of hauling 52 million metric tons of cargo will be cut up and sold for scrap metal this year. Owners have only ordered 293 vessels this year through July — a stark decrease from 2010-15, when owners were buying 1,450 ships annually.
The reason? A stagnant global economy that stems from little growth in Europe and a slowdown in China.
Chinese imports from the European Union fell 14% last year, according to The Journal. In the first quarter of this year, Chinese imports from the EU fell 7% from a year before. Exports to Europe have fallen as well.
All of that means there’s an overcapacity of ships, leaving owners no choice but to leave them idle or recycle them. Typically, ships are recycled every 30 years, but now that average is 15 years.
“If you go back five years ago, people saw growing demand at very high rates. There was a bit of an uptick in the number of ships that were brought on, particularly in 2012, 2013, and 2014,” Sean Monahan, a partner at the consulting firm AT Kearney who is an expert on shipping, told Business Insider.
“But generally demand has flattened, and in some cases a little bit declined … there are a lot more ships either being dry docked or being scrapped,” Monahan said.
And owners aren’t getting the same bang for their buck when recycling ships. A sharp drop in the price of steel has dropped the rate of return an average of 10% to 15% of the price of a new ship, The Journal reported.
Maersk, the world’s largest shipping company, said in its earnings call this week, that it expects declines across most of its businesses this year due to the stagnant global economy.
“Currently we are challenged by market headwinds, as I started out talking about, in the form of low growth and excess capacity in both our industries and that has led to declining prices and declining revenue,” CEO Soren Skou said during the earnings call.
Monahan said falling global demand has pushed “a lot of ocean carriers into real financial issues,” but that the slowing trade between US and China is really indicative of the setbacks the shipping industry is facing.
“There’s just excess capacity that’s built up for a number of years,” Monahan said of the US-China shipping lane.
Monahan said he sees this being an issue for the next two to three years, before demand bounces back to the point where more ships can be in use.
Source: Business InsiderPrevious Next