It is not a secret that the global economy is going through a rough time. This situation completely affects everything along the supply chain and the way different industries make decisions. Perhaps, one of the industries that has suffered the most should be the shipping industry. For this industry numbers had reached a new low since the demand for commodities has considerably decreased in most countries.
This decline in the shipping business has made different companies merge in order to stay in the game. State-owned companies such as China Ocean Shipping Co. and China Shipping Group became one big company due to the complications related to the shipping crisis. Other big guys like CMA CGM SA (France) have bought other shipping companies in Singapore. These are simple cases that allow other individuals to understand how difficult things are getting for the shipping industry due to the global recession that took place during 2.016.
Most people can picture some scenarios where the shipping industry will be dramatically affected by the recession. However, in this article, Suzzanne Uhland will share some relevant ideas related to the present and the future of the shipping industry.
Present of the shipping industry
Currently, we are seeing how companies like Hyundai Merchant Marine Co. (one of South Korea’s largest carriers), are selling their assets to avoid bankruptcy, a situation that has affected one of the largest and most important shipping companies like Hanjin Shipping.
For those companies which have recently declared bankruptcy, the situation gets even more complicated since their fleets have been banned from the docks due to the impossibility they have to pay for all the docking fees. This means that today there are more than 500,000 containers offshore, waiting for their legal situation to be solved regarding the bankruptcy process the container owner companies are going through.
Keeping container offshore is also affecting retailers, who don’t know when they will get their products. This makes everyone reevaluate their import strategies no matter if costs get higher. This entire picture frame is not close to benefit the shipping industry in the near future.
The global slowdown for the shipping industry has also affected companies such as Panamax, which last year grew its fleet’s capacity this year, investing in 200 ships able to carry more containers. This expansion turned out to be negatively affected by the slow growth of the industry during 2.016.
A big reason why there has been a global slowdown for the shipping industry is due to the budget cutback many companies in China have had to do. The reduction in the demand for supplies such as coal or iron has drastically reduced the number of ships needed to transport raw material from one place to another.
Future of the shipping industry
Based on the current trends and issues the industry is having, it is reasonable to predict that more shipping companies will go bankrupt within the next years. The slowdown in shipping demand will force companies to reduce their prices, which will be likely to affect their ability to cover up for costs and will force shipping companies to restructure, sell their assets or merge with other companies.
The merger of companies will leave the market with fewer competitors who will monopolize the market and reduce the chances of obtaining different rates, deals and services due to the lack of competition.
One of the biggest impacts that will take place in the mid to long-term is the constant interruption in the supply chain due to the lack of material delivered by ships. Every time a shipping company declares bankrupt, millions in merchandise meant to land on the shelves is held back in the sea. This will affect retailer and final consumers.
Some experts are a bit pessimistic about the future of the shipping industry, giving ship owners the option of taking their ships to scrap yards, selling them for their scrap metal value (which is also low). This is actually a current trend for the industry, showing that the average age of ships was 25 years almost a decade ago and nowadays has decreased to an average of 20.
In conclusion, the global economy has affected the shipping industry and will continue to do so for as long as the demand in supplies keeps decreasing as well. The recession is far from ending and even the largest shipping companies in the world such as Hanjin Shipping haven’t been able to avoid this economic disaster. Merges are recommended for those who want to stay in the game, even though consumers may be the most affected ones.
Today is the right time for companies to rethink their import strategies and for businessmen to figure out the way to reduce distances along the supply chain, in a way materials can be obtained locally. As for ship owners, it is time to reconsider how they want to grow and whether they are doing it faster than the market is demanding them to do so.