The Three “E’s”

Last week we noted a story from London which reported the demise of one of the dry bulk industry’s largest carriers due to the “collapse” of the dry bulk shipping market. According to the report, there is growing concern in the industry that other dry bulk carriers could also go into default as freight rates continue to tumble.

The American Shipper reported that concern in this way: “Host of problems confront liner industry”

“Smooth days it ain’t these days for liner carriers. Cuts in earning forecasts, dropping rates, cancelled ship orders, worries of overcapacity, weak charter markets. The credit crunch has hit liner shipping in a big way …”

“Meanwhile, Mearsk Line chief Eiving Kolding said the industry should be braced for mergers in the coming years as rate pressures would drive some carriers to the brink, Lloyd’s List reported. Speaking at a German logistics forum, Kolding said he expected rates to bounce back, but possibly not in time to save every carrier.”

Revealing that shipping lines are actually subsidizing containers on some routes, Kolding predicted that, “If we see that picture continuing for another six to 12 months, my estimate will be that not all liner companies will be able to sustain that.”

Mr. Kolding’s name isn’t exactly a household word in the U.S. but he does happen to be the CEO of the world’s largest shipping line, and U.S. port officials are certainly aware of that. And because they also know that Mr. Kolding knows what he’s talking about, shouldn’t those port authorities back off from the glowing projections they’ve been announcing to taxpayers these past few months?

Mr. Kolding isn’t the only one hinting at a downward spiral in container shipping. A recent report revealed that the planned release of a document key to the proposed deepening of the Savannah River has been delayed as the U.S. Army Corps of Engineers “grapples with the economies of the project”. Significant issues arose about all three “E’s”, an official noted – the usual engineering and environment, of course, along with a new one – economics. It was the Corps’ way of telling the port officials that slumping container volumes won’t require dredging in the Savannah River – and besides, funding for such ill-advised projects isn’t available.

And another hint. The Panama Canal can’t come up with financial backers for its expansion dream either, so once again it extended the due date for bids to build its new set of locks required “to handle the 12,000 TEU vessels” that port officials say will be heading for U.S. ports by 2014.

“Cuts in earnings forecasts?… dropping rates?… cancelled ship orders?… worries of overcapacity?” Now that all this is public knowledge, will U.S. port officials continue to foist the idea on taxpayers that by 2014 large numbers of giant 12,000 TEU vessels will be muscling through the expanded Panama Canal and on toward busy but unprepared U.S. container ports? Stay tuned.