No cargo = no industry

According to the shipping advisor we wrote about in our last commentary, “The shipping industry’s fortunes should be noticeably improved by 2015 … The shipping industry can afford to be a little more bullish than previously in its aspirations for 2014 … Confidence rose to a three-year high over the course of 2013 …”

We called that kind of forecasting “a brazen con job.”

With respect to conditions in the shipping industry, today’s report by Drewry makes it quite clear that the above-mentioned shipping advisor wasn’t at all accurate in his assessment.

“Profitability of container shipping lines is now being driven by cost cutting and the ongoing sale of non-core assets – not higher cargo volumes – and while freight rates stay at historically low levels, most carriers end 2013 in the red …

“Slow steaming analysis shows that little was done on this front in 2013 to save further costs or absorb additional capacity.

“‘The immediate successes of GRI (General Rate Increase) attempts, such as the mid-December implementation in the Asia-Europe trade which has pushed spot rates back up to $ 3,000 per FEU continues to give false hope to the industry, since the majority of trades remain over-tonnaged,’ the report said.

“This positive news for carriers is undone by the realization that many 2014 contracts have been signed with core shippers on the Asia-Europe trade at rate levels of between $ 300 and in some case up to $ 700 per FEU below those signed in 2013. Even with bigger ships now being deployed, carriers will still find it difficult to make a substantial profit,’ said Drewry research chief Neil Dekker.

“‘The industry’s major players are continuing to adapt to a new era in the container industry characterized by too many ships, and cargo volumes on many trade lanes that refuse to live up to previous expectations … formation of new operating alliances are essential if the industry is to stabilize,’ Mr. Dekker said.” –

Unlike industry shills, the folks at Drewry are impartial. Cost cutting, the ongoing sale of non-core assets, freight rates at low levels, most carriers ending 2013 in the red, ineffective slow steaming, bigger ships and no substantial profit, too many ships, falling cargo volumes, the necessity to form new operating alliances – these problems Drewry cites give the lie to optimistic forecasting.

Nothing will change until our unemployment crisis is addressed. No jobs = no paychecks. No paychecks = no buyers. No buyers = no demand. No demand = no cargo. And without cargo, how can the industry be expected to “stabilize”? More to the point, how will the industry even survive?