“If all of the new tonnage came into the market now, it would depress this industry for years. We believe (in the coming years) there will be many acquisitions and bankruptcies. This is not only a time of crisis, but a time of redistribution of wealth and assets.” – Sturla Henriksen, Managing Director, Norwegian Shipowners Association.

Spiegel staff writers provided further insight in their August 11th analysis of the shipping crisis. In “Shipping Industry Fights for Survival” the authors provide a comprehensive look at the “Scary Reality” maritime interests are now facing.

“The global economic crisis is wreaking havoc on shipping,” the writers state. “Demand and prices have collapsed and ports are filling up with fleets of empty freighters. The crisis has fueled cut-throat competition and not all companies will survive. Germany’s Hapag-Lloyd alone needs 1.75 billion euros to stay afloat.

“Until not too long ago, shipping was both the greatest beneficiary and hammering pulse of globalization, moving goods around the world at an ever-increasing pace. The industry has been growing rapidly from year to year, ever since China became the world’s factory. In 2008, roughly 500 million standard containers (TEU) were transported on the world’s oceans – twice as many as at the turn of the millennium.

“Year after year, new and ever more massive ships were built, ports were expanded and new scheduled services were introduced. The cargo capacity of the world’s combined container fleet increased from 4 million TEUs in 2000 to 12.5 million today.

“Many became rich in the years of the boom, including ship owners, bankers and investors, particularly in Hamburg. In the last decade, the northern German port city became the world’s leading center for the financing and operation of new ships. Germans own 35 percent of the container ships in operation worldwide, and close to 60 shipping banks and financiers are headquartered in Hamburg. Hamburg-based Hapag-Lloyd became one of the world’s leading shipping line operators.

“Now the global financial and economic crisis has stifled the boom in container shipping, and it has happened almost overnight. For the first time in its history, the industry has stopped growing and, in fact, is shrinking. In the first six months of this year alone, the shipping industry declined by close to 16 percent.

“The new giant ships are now much too big for the cargos they transport by sea, and often they sail half-empty – if at all. Billions are being spent to expand ports to handle a boom that no longer exists. Leading shipping line operators are on the verge of bankruptcy, as are shipping banks and charter shipping companies. The industry, once one of the biggest beneficiaries of globalization, now threatens to turn into one of its chief casualties.

“‘There has never been a crisis like this one before,’ says Reinhard Lange, the CEO of Kuhne + Nagel, the world’s largest sea-freight forwarder. Shipping line operators alone are expected to suffer combined losses of $ 20 billion in 2009.

“Drewry Shipping Consultants, the world’s top consultant to the industry, warns: ‘The industry is looking at the edge of a deep abyss.’ And industry publication Lloyd’s List writes: ‘Container shipping was thrown into a full-scale panic.’

“This sense of panic is more palpable in Hamburg than almost anywhere else in the world …

“Although the shipping industry has always gone through cycles, shipping companies now believe that things have changed drastically, and for the worse. ‘There was never a shortage of cargo in the past,’ says Ulrich Kranich of Hapag-Lloyd. But that’s no longer the case today. Because of declines in consumption in the West and production in the East, the global container fleet’s enormous cargo capacity can no longer be filled. The resulting sharp decline in prices means that almost all shipping companies are generating substantial losses …

“The invention of the shipping container made such prices possible in the first place. Nothing has advanced globalization more since the mid-1980s than the boom in these steel boxes. China’s rise to global economic power would be inconceivable without containers. The more shipping costs declined, the more it made sense for Western companies to outsource production to faraway parts of the world. ‘Chinese factories rarely have warehouse capacity,’ says Kuhne + Nagel executive Lange. ‘They often produce directly in the container.’

“In fact, shipping costs are so low today that it is even worthwhile to ship Spanish tomatoes to China for processing into tomato paste, which is then shipped back to Europe. Dutch tulip bulbs are shipped to new Zealand and then returned to the European market in the form of mature plants ready for flowering …

“In the current financial crisis, financially strong shipping companies are fueling the price war even further to gain market share, at least according to their less well-heeled competitors. ‘There is cut-throat competition going on,’ says one ship owner …

“None of the world’s major shipping companies is currently turning a profit … But Hapag-Lloyd appears to have been hit by the biggest crisis in shipping at the worst possible time … ‘Without outside help, we won’t make it,’ says an insider …

“But the real problems are still ahead for German shipping companies. The 1,550 new ships that were on order in mid-2008 are to be delivered in the next few years. The major Asian shipyards are unwilling to accept cancellations.

“Some ship financiers have already decided to forfeit down payments already paid to the shipyards, which can amount to up to 40 percent of the total price, because they lack the additional millions needed to take delivery of the ships on order. Most others are trying to negotiate with the shipyards to at least delay construction, in the hope that the situation will improve significantly in a few years.

“To reduce loading capacity, ships are already being decommissioned today, and they now lie at anchor, unused, in ports, estuaries and bays around the world. Ironically, most of these idle ships are at anchor off one of the most important arteries for world trade: the port of Singapore.

“A visit to this final resting place of the products of globalization involves a 45-minute boat ride into the waters off Singapore. The armada of decommissioned ships at anchor there – all classes of tankers and super freighters, as far as the eye can see – is an eerie sight …

“There are few signs of life on board the idle behemoths. The shipping companies have sent most of their crews home, often to the Philippines. The skeleton crews left behind spend their days servicing the engines and applying paint to rusty spots …

“‘The US economy needs to recover before global trade can start growing again,’ says Kuhne + Nagel executive Lange.

“There is little evidence of a recovery in the port of Charleston, South Carolina. There is only a single ship docked at the wharfs in one of the biggest ports in the United States. Only last year, brand-new, giant cranes were installed at the Charleston terminal. Many of them are now idle, partly because orders are sharply down among German machine-building companies.

“Forty-five percent of U.S. imports of German goods pass through Charleston. Containers owned by German shippers like Hapag-Lloyd and Hamburg-Sud are stacked high in the harbor. BMWs, fresh off the assembly lines, stand in endless rows at the wharf. They include SUVs produced at the company’s nearby plant, bound for Europe, as well as 3 series and 5 series cars intended for the U.S. market.

“Port spokesman, Byron Miller, who wears a German flag pinned to his lapel, smiles cheerfully. But his mood changes the minute he is asked about the situation, which he characterizes as ‘not good, not good.’ Between July 2008 and May 2009, the number of containers arriving at Charleston from the northern European region, the point of departure for German goods, declined by about 100,000. Total volume at the port has dropped by almost 18 percent …

“Charleston is not alone. Almost everywhere in the world, feverish efforts have been underway to expand new port complexes or build entire new ports to accommodate both the surge of demand for port capacity and the giant new container ships that existing port facilities were too small to handle. No economy, it seemed, could afford to allow its access to the highways of globalization to become clogged because of lack of capacity.

“But what happens now that the traffic jam has cleared up? The experts at Drewry estimate that it will take until 2012 before container turnover returns to 2008 levels.”

But first things first. Neither Drewry nor anyone else in the shipping industry – or in any other industry for that matter – has even the foggiest notion of when an economic turnaround will begin. We’re in an accelerating free fall, and as Mr. Lange stated above, ‘The US economy needs to recover before global trade can start growing again.’ [… and isn’t that what we’ve been trying to tell you?]