Oversupply and Demand

On December 29th, the Associated Press produced an article that was gobbled up and reprinted by dozens of newspapers around the world. The AP Business Writer, the author of the nonsense, introduced it with this heading: “Canal expansion sets off race among Gulf ports”

“With the recession showing signs of ebbing,” the article begins, “Gulf of Mexico ports hope hundreds of millions of dollars in expansion projects proposed before the downturn will help them capture more trade as the world economy recovers.

“A $ 5.25 billion project to expand the Panama Canal will allow the largest container ships to cut through to the eastern side of North America – and perhaps cut into the dominance of West Coast ports handling freight from Asia.

“Even though the downturn has clouded future trade patterns, port officials said now is the time to be getting ready. Expansions pegged to the Panama Canal project, which is due for completion in 2014, had largely been on the drawing board before the recession began.

“‘There are some ports throughout North America that have said, “Let’s wait and see how long term this economic development is going to last,”’ said Don Allee, chief executive of the Mississippi State Port Authority at Gulfport. ‘But if a port decides to wait, it could be a costly decision.’”

Those in the Gulf ports are either dreaming or scheming because that isn’t how others are sizing up the downturn. An overseas analyst offers this observation: “Oversupply is key challenge faced by shipping: The year 2009 is slipping into the past leaving the global shipping business in troubled waters. Falling freight and charter rates, fallen dry bulk, liquid bulk and containerized shipment orders from shippers, rising bunker charges, banks unwillingness to finance, and above all overcapacity because of the demand-supply mismatch kept the anchor low in most of the major shipping routes around the world. Although the rates are hardening in recent months, it is too little for the crisis-ridden global shipping sector.

“Michelle Byrne, Head of Shipping and Freight Transport at Business Monitor International (BMI), the global industry research and analysis firm based in London, said: ‘The main challenge facing not only the shipping lines in the Gulf (but also globally) is oversupply. The container sector is still struggling with a dearth of vessels, compared to the volumes of trade that need shipping …’”

Struggling? The world’s top 22 ocean container carriers lost some $ 11 billion in the first nine months of the year and are expecting further losses in 2010.

Those carriers, to be truthful, can do nothing to prevent their future losses. It all begins and ends with joblessness in the U.S., and as long as the average American is without a job, the ever-diminishing “sine qua non” – the buying power which fuels the world’s economy – will sustain the “supply-demand mismatch” and the world-wide economy will continue to plummet.