A Shot in the Arm
Two years ago this month – in Vol. XIV, Art. 7 – we quoted a writer in the Hindu Business Line. As T. E. Raja Simhan put it, “If the U.S. sneezes, the Asian maritime industry catches cold.”
It sounded cute, but little did we know back then how prophetic these words were. It’s obvious to all that the U.S. economy is well past the sneezing stage, and while we’re wrestling with ill-advised bailouts and stimulus programs, the maritime industry – the most important cog in the world’s transportation mechanism – finds itself in the intensive care ward.
Just before Christmas it was revealed that the industry’s 22 largest container carriers lost $ 11 billion in the first nine months of 2009 and are expecting even further losses in 2010. These future losses are seen to be the direct result of diminishing U.S. buying power. Vanishing U.S. consumers curtail Chinese manufacturing and therefore require less services from ocean carriers.
Maersk Line Asia-Pacific chief executive Jesper Praestengaard said, “2009 has been the worst year for both the shipping industry and Maersk Line since World War II. This is evident from the fact that 2009 is the first time in our 100-year history that AP Moeller-Maersk Group has posted a half-yearly loss.”
Much like falling dominos the slowdown in shipping has adversely affected the world’s shipbuilders. According to media reports, Hyundai Heavy Industries, the giant Korean shipbuilder, saw orders fall by 61 percent last year, and it has been estimated that overall orders around the world were down by about 80 percent.
To compound the situation, the equivalent of 50 percent of the current world fleet is set to be delivered by shipyards in the next year or two, and because carriers are facing another difficult year, these emerging newbuilds call for some hard-headed decisions. Either more ships will have to be laid up, or a massive number of older ships will have to be scrapped, simply because this emerging extra capacity cannot be accommodated.
Another option is being considered by carriers at this time – slow steaming “at 14 knots or less”. Ludicrous. It’s a desperate measure that will increase costs all along the supply chain.
Think back. The “bigger-is-better” folks couldn’t wait to design and order speedy leviathans in the 10,000 to 12,000 TEU range. Remember that? Greater size and speed would provide “economies-of-scale”, they insisted. In spite of early indications to the contrary, not a thought was given to the possibility of an economic downturn. The corporate fanning of feathers was all that mattered.
But we didn’t buy it. We promoted instead our smaller, patented and more efficient container ships – vessels that would serve smaller ports close to end users – vessels that would be built in revitalized U.S. shipyards by newly-employed U.S. workers – vessels that would halt the world’s economic tailspin – vessels that would stifle sneezes in the U.S. and cure colds in the Asian maritime industry.