SCDigest Editorial Staff
The global financial crisis is taking its toll across almost every sector, including some far away from Wall Street. The once booming ocean shipping industry, benefitting from several years of torrid shipping volumes and building ever larger ships to meet seemingly never ending demand for international container moves, are suddenly hurting as bad as any industry as shipping demand substantially softens.
How bad is it?
Some reports say that the cost to ship a container from Asia to Europe has recently plunged from $2800 just a few months ago to just $700 today.
While ocean carriers were making great profits over the last few years, the incredible reversal in rates has totally changed market dynamics, to the benefit of shippers but to the financial peril of ocean carriers.
Eivind Kolding, chief executive of Maersk, the world’s largest ocean carrier, says that spot market rates for container moves are simply "unsustainable," according to a recent story in the Wall Street Journal.
The dramatic drop in rates is the result of several factors. Volumes of ocean shipping have slowed, but not that dramatically. For example, London’s Drewry Shipping Consultants Ltd., a respected research and consulting firm, expects container volumes from Asia to the US to shrink by about 5% in 2009, after years of double-digit annual gains.
But the modest container volume decreases are coming as the industry has been ramping up capacity as if the double-digit increases in container volumes would continue forever. Indeed, perhaps the biggest news in the industry over the past few years was the arrival of the newest generation of “megaships,” with capacity for as many as 11,000 20-foot containers. (See Giant Cargo Ships Keep Coming.)
(Global Supply Chain and Logistics Article - Continued Below)