18-06-2016

18% of the world’s cargo ships are sitting idle

shipping

In the aftermath of the 2008 crash, international shipping sank to record lows — but container ship companies kept on building, turning out some of the biggest ships the seas have ever seen.

Slack demand and increased supply means that the price of a shipping a full container has declined by 50% in the last quarter. What’s more, though the shippers are focused on bigger vessels, the biggest efficiency savings are in small engines, making these new behemoths even less competitive. Not to mention that the losses from a foundered or plundered mega-ship are up to $1B, making them prohibitive to insure and protect.

Even more expensive are the port costs for the new generation of mega-ships, from dredging to cranes and warehouses. This limits the ports where the ships can put in, and increases the port-fees associated with them.

There’s a reckoning coming.

Under such circumstances, you’d think that ship owners would start to steer clear of big boats. But, fearful of falling behind the competition and hoping to put smaller operators out of business, they’re actually doing the opposite. Global capacity will increase by 4.5 percent this year, and by another 5.6 percent in 2017 — almost entirely due to new mega-vessels like the Benjamin Franklin.

Mergers and consolidation, which some shippers are pursuing, might offer a chance to keep those big ships steaming. But sooner or later, even the biggest operators will have to accept that the era of super-sized shipping has begun to list.

Source: Bloomberg

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