With the Downfall of Hanjin, it’s time for the container ships to have their day. First of all here’s Peter Grant with most of the story so far.
It’s getting worse even now.
This is the third of these reports and I sort of held off on it hoping for some good news and collecting more links. No dice on the good news, unfortunately. It appears that shipbuilding has essentially stopped, for every shipbuilder in the world. At least for the bread and butter large vessels.
Global trade, which collapsed during the Financial Crisis but then recovered in a V-shaped manner, was expected to continue soaring. Instead, it has languished over the past few years. Carriers that transport these goods in dry-bulk vessels, tankers, and container ships, face rampant overcapacity and crushed shipping rates. Smaller ones have sunk. In August, Hanjin, the sixth largest carrier and a formerly too-big-to-fail company in South Korea, was allowed to fail. And they all stopped ordering ships.
However, orders at European shipyards have jumped 45% through the first eight months this year. On the global scale, they’re small players, accounting for only 9.3% of the order book. But they focus on the smaller thriving market for cruise ships, ferries, and tugs.
One problem is that the economics of scale for container shipping where a very large ship doesn’t really cost all that much more to run than a small one has pushed the container companies recently into new construction of some very large container ships.
The fact is that container ports have become so efficient that it pays to float a 18,000 TEU vessel because even ships that large do not spend significant time in port. With low interest rates and the prospect that fuel price may have gone up the shipping companies ordered some very large vessels indeed.
The problem for the shipping companies is that they took on far too much debt to build these ships and the markets since 2008 have not supported the numbers of containers that the shipping companies once expected. So the ships, like the tankers and dry bulk carriers I’ve posted before about before.
The same thing is happening to the railroad and tricking industries and their suppliers.
The upshot is that the seas are still stormy and It’s likely that shipping will be struggling for some time to come. I think that soon, if it’s not already happening, there will be hundreds of nearly new ships anchored in out of the way spots, rusting away until the loans run out and they can be safely sent to those beaches to be cut up.
The whole mess is the result of looking for economic stimulus rather than creating a positive economic climate for growth. The Administration and indeed, the last three Administrations have worked to create an environment where growth has been replaced by rampant speculation and the shipping companies, like the rest of us were caught up in the casino. The problem with this dance is what happens when it ends.
update: Last Call for Hanjin.
The last sector facing these issues, that of container shipping, is what brings me to this post. The past decade of the container ship industry has been characterized as an arm race in the economies of scale. Large and larger ships, dubbed Ultra Large Container Vessels, carrying in upwards of 18,000 TEU’s have been ordered in droves. In a time of growing demand for capacity these ships would make absolute sense. It is vastly more efficient to transport in bulk, on of the reasons seaborne commerce makes up 90% of the goods transported world-wide. However once again capacity and vessel availability is outpacing slowing demand. You practically can’t scrap older smaller ships fast enough, and even if you could, it would take the scrapping of several older ships to balance out the capacity brought to the market by these new generation ULCV’s.
Like many Offshore Oil Services companies, and Dry Bulk shippers, bankruptcy has been a looming threat for several container shipping companies. Several weeks ago the seventh largest one in the world, Hanjin Shipping, announced that they were going out of business. No chapter 11 debt restructuring, outright bankruptcy. Last calls, doors closed, lights off, someone else has the keys. It put a lot of ships in a precarious limbo. Stuck at sea or in anchorage with cargo aboard, however many ports wouldn’t allow entry for fear of non-payment to the various parties involved. From the Pilot’s, tug companies, and terminals, no one wanted to be stuck with the bill. After a lot of these issues were sorted out, many ships started making their final port call’s under the Hanjin flag. I was fortunate to be tipped off to the one of the final arrivals for Hanjin at Maher Terminals at Port Elizabeth. While there would be other calls by other Hanjin ships as late as yesterday, this would be the last ship to unload only at Maher. The reason for this being the last few ships arriving wouldn’t be able to fit under the Bayonne bridge light of cargo. Even this ship, the Hanjin Miami was backloaded with empty containers from other lines to reduce her air-draft. As it was though, I caught her arrival early one morning, before dawn last hitch. For more information on the last few port calls in New York by Hanjin, see here
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