The International Shipping Industry Is Floundering

September 9, 2016 in Daily Bulletin

Joshua Keating wrote about the multiple conundrums facing the shipping industry:

  • After Hanjin, a South Korean shipping firm, unexpectedly went bankrupt; the 85 container ships it had out sailing at the time have been stranded at sea. Ports refuse to serve them because they’re not sure that they’ll get paid for their services, and the crews are running low on food and water.
  • This all stems from over-capacity in international shipping. Shipping capacity grew 8.6% in 2015, while global trade only grew 2.6%.
  • Shipping capacity increased because analysts expected demand for shipping to rebound after the financial crisis. What experts weren’t banking on, however, was a slowdown in China’s economy.
  • This is also hurting Egypt, which controls the Suez Canal, and Panama, with its eponymous Canal. Both countries recently spent substantial amounts of money to increase the operating capacity of the Canals…just as global shipping crashed.
  • And so 25% of the world’s shipping capacity is entirely unused, with hundreds of boats just waiting in docks.
  • The industry would recover if supply were to decrease – perhaps by having some ships scrapped and sold for their metal. But with prices for commodities like steel at record lows, it’s not even cost-effective to do that.

Read about what will happen to the cargo on the stranded ships, the effect that Hanjin’s bankruptcy is having on other shipping companies, and other details here.

Source: Slate