The Impact of the Economic Crisis on the Shipping Industry and Trade Consequences

Winter 2009

Joan M. Bondareff

Women in International Trade Newsletter

The shipping industry is not immune from the current economic recession. In fact, companies are laying up container ships and laying off workers around the world. Bulk carriers have also not fared well as exports of dry bulk goods have declined. Tanker companies are doing somewhat better, but this is just in comparison to their brethren.

In December 2008, the World Bank predicted that world trade would fall by 2.1 percent in 2009 for the first time since 1982.

The Obama Administration just took office and one of the first steps it will take to improve the economic situation is to get Congress to enact a major stimulus or economic recovery package. Some elements of the package could beneficially affect the maritime industry, including new port infrastructure projects, improvements in the title XI loan guarantee program and possibly grants to train unemployed maritime workers.

We do not yet know what the new Administration plans to do with pending trade agreements, except we can assume a greater emphasis on worker rights and environmental protection.

The recovery of the U.S. economy and a proposed increase of four million new jobs will certainly have beneficial impacts on our trade and therefore improve the decline in shipping rates and new ship construction.

The experts who looked back at 2008 found fairly disturbing news in the shipping industry, which they evaluated on a sector-by-sector basis.

The largest declines came not surprisingly in the area of container ships. Long the pride of the oceans, according to recent trade press reports, "unemployed capacity is now at 165 vessels," or more, with the "biggest casualties [being] ships of 1,000 teu - 2,000 teu capacity, [or] almost 60 now unemployed." {2 From 12/31/08 Britannia News Brief, article by Janet Porter.} Ironically, and sadly, the downturn comes "at a time when the fleet is growing at record speed, with total capacity passing the 13 million teu level just before Christmas [2008]." { 3 Idem.} According to Paris-based consultancy AXS Alphaliner, the world's box fleet is projected to hit 14 million teus by August 2009. {4 http://www.cargobusinessnews.com, week of Jan. 5-9, 2009.}

For dry bulk carriers, the trade press reports that "the situation is even more daunting". { 5 By Alkman Granitsas, Dow Jones Newswires, reprinted in FOCUS: "Financial Crisis Seen Cutting Shipping Oversupply", 11/6/08} Time charter rates for the largest of the bulk carriers, with a displacement of more than 160,000 DWT, "have fallen from more than $200,000 a day" in August 2008 to "less than $10,000 a day" in November 2008. {6 Idem.}

At least the tanker market has held steady. In fact, for most tanker types in 2008, "average earnings surpassed boom times last seen in 2004." {7 Michelle Wiese Bockmann, "Record Year for Tankers Despite Financial Crisis", reported in Britannia News Brief, 12/31/08.} However, much tougher times are forecast for 2009. {8 Idem.}

There is also a potential boomlet in the market for tankers carrying oil to Europe and the United States which is attributed to the requirement for all such tankers to be double-hulled by 2010. As the Dow Jones forecasts, "the biggest surge in double-hull vessels will come next year as tanker owners race to meet that deadline."{9 Idem.}

The global credit crisis has resulted in a rapid decline in world trade that has rippled through all segments of the transportation industry. The recent boom years and the expansion of the Panama Canal led to an oversupply and an over-commitment to the production of new and larger container ships. Many of these orders may be cancelled for lack of financing. But, as the world economy improves, we can see the resurrection of new orders and increases in world trade.

Depending where you sit, company owners range from optimistic to pessimistic in the short and long term. For example, Maersk chief executive Nils Andersen has forecast that "global container shipping volumes will contract this year [2009] and the market will be tough into 2010." {10 www.lloydslist.com, 14 Jan. 2009.} On the other hand, Evergreen Marine, the Taiwanese global shipping line, has reportedly announced plans to order 100 containerships at a cost of $5.5 billion as part of a vessel replacement program, according to press reports from Taipei. Evergreen expects the global downturn to start picking up in 2012. {11 Reported in http://www.cargobusinessnews.com, week of Jan. 5-9, 2009.}

The Obama Administration is committed to the creation of up to four million new jobs. Some of these may well be in the maritime industry in the form of the construction of new port and intermodal projects, new title XI loan guarantees for building double-hull tankers, new assistance for U.S. companies interested in short sea shipping, and grants to retrain unemployed maritime workers.

If the Obama stimulus package is successful and is mirrored by similar stimulus packages of European and developed nations, we may look to an improving economy in the second half of 2009 with more gains in 2010. As the economy improves, the shipping industry will be the beneficiary. As they say, a rising tide lifts all boats.

"The Impact of the Economic Crisis on the Shipping Industry and Trade Consequences" by Joan M. Bondareff first appeared in the WIIT Newsletter, Winter 2009 edition.