A Stern Warning

Earlier this month – in Article 4 – we called attention to the following “events”:

– 2009 was the first time in its 100-year history that the AP Moeller-Maersk Group, the world’s largest carrier, posted a half-yearly loss.
– Hyundai Heavy Industries, the world’s largest shipbuilder, saw its orders fall by 61% in 2009.
– Carriers are now being forced to determine whether a.) more ships should be laid up, or as an alternative, b.) “a massive number of older ships” should be scrapped.

Carrier losses for 2009 are estimated to be somewhere in the $ 20 billion range, a situation so dire that serious thought is being given to slow steaming “at 14 knots or less”.

How’s that for switching horses in the middle of the stream? We just had to pick up on that one.

“The ‘bigger-is-better’ folks couldn’t wait to design and order speedy leviathans in the 10,000 to 12,000 TEU range,” we wrote. “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.”

None other than Tommy Stramer (R.I.P.), Zim’s former CEO, warned that those hundreds and hundreds of giant vessels could very well turn out to be “white elephants” some day, but not many people heeded his warning. That’s because not many people were as smart as he was.

But a story in Lloyd’s List last Friday reveals the current rationale in the industry. A “prescient” spokesman “made a strong case last week that slow steaming is likely to be a permanent condition for all shipping,” the story began.

“The underlying message is that those who think the practice is a temporary one associated with high bunker prices and a shipping recession are deluding themselves.

“Slow steaming started on Asia-European trades, where longer distances allowed shipowners to slot in an extra ship to maintain schedules. But it has now spread to the transpacific trades, where ships are running at 17 to 18 knots rather than the previous standard 22 to 23 knots. This lengthens the voyage by two days from Asia to the west coast of the United States and up to four days to the U.S. east coast.”

“Prescient” (?) was the word used to describe that spokesman. He and other industry bigwigs should have been “prescient” back when it counted.

Here’s what’s “prescient”. Those giants are nothing more than overkill and are about to join the hundreds of vessels now in mothballs. None will ever sail again. All will be scrapped. And soon.