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Shipping industry decline: Global slowdown effects on international trade

Shipping industry decline: Global slowdown effects on international trade


The ongoing financial meltdown, mainly in the United States and the European Union, has had a straight effect on the flows of international trade with a direct influence on the labor sector. The slow growth has been the result of austerity, and while industrial and consumer demand vanishes, additional growth decreases and an international trade fall are the terrible results that the world economy is dealing with.

However, this is not new. From 2008 to 2009, the whole world was seriously affected by the financial recession. Exports fell everywhere, unemployment increased to the skies and the consumer demand declined consequently, because of the low income of all people. In 2009, the international meltdown was the cause of a record growth slowdown. The trade capacity, as an effective growth engine, produced a domino effect on supply chain production and transportation: a 4.5% decline and a container volume decrease by 9.7%, mostly in industrial and consumer products. On the other hand, and against all expectations, container trade grew regardless of the uncertain status of US and EU economies, which barely grew from 2010 to 2011.

In an article written in 2009, it was said –maybe for the first time– that the maritime business is far from being invulnerable to economic recessions, especially to the one that took place almost a decade ago. Things were not easy: Companies all over the world had an excess of container ships and a severe lack of workers. The year before, the World Bank had expected a world trade slowdown by 2.1% for the coming year (the last time the WB made such a prediction was during the economic crisis of 1982). The Good news were that the Obama Administration made a positive intervention: it got the Congress to ratify a higher support for the economic recovery, and the effects of it were seen after 2010. In fact, those measures constructively affected the shipping business: new harbor infrastructure projects were produced, the title XI loan guarantee program was successfully improved and grants were given to several jobless shipping workers.

Globalization has meant a higher change in international trade and, of course its bond with GDP increase. All over the 90’s, an enlargement in the yearly percentage GDP increase was approximately comparable to the enlargement of consumer products, defined as merchandise trade. Yet, on the late 90’s, because of the tremendous foreign direct investment that took place in China, all countries experienced for the first time an impact when it came to sourcing of end consumer goods and their dependence on global container trade. The thought-provoking point was that most of the maritime related business, together with the traders and sellers, stated that they did not see such trade recession coming. Now we have learnt from that experience and we can take different decisions in the current crisis that affect us all.

Image courtesy of Gérald Fauritte at
Image courtesy of Gérald Fauritte at

This kind of crises can be seen as business cycles of high and low peaks, where periods of growth are usually followed by adjustment stages. In those stages, misallocations are fixed, especially if they are based on credit. In the current year, the decrease of transporting prices for moving iron ore, coal, and raw material in general by oceans have never seen before, and have forced maritime corporations to take austerity choices in order to avoid filing for bankruptcy: Payments to creditors suspensions and big write-offs, made by openly listed organizations, for example. Ship-owners are proactively reacting to a collapse in contract rates produced by a combination of undecided trade development, in particular with China, and an excess of ships ordered in fat-cows times come into the market (for more information, I have already written about it in previous posts. By the way, don’t forget to follow me on Twitter: Suzzanne Uhland). The breakdown has pulled on much more than what it was expected: the regular charter rates for dry-bulk carriers are currently at the deepest point since the beginning of the Baltic Dry Index, in 1985. The problem that brings concern is that it falls every day.

In conclusion, global trade has experienced a growth to late 2007, and then started the storm. From the middle of 2008, there was a sharp trade contraction, which affected an enormous sector of the OECD states. The meltdown in the trade of containers simply had no precedent because consumers began to keep their savings. They were afraid of losing their jobs. In addition, there was a global banking crisis (which can be traced to the real estate crisis in the US): credit almost dried up. The signs of the crisis cycle are repeating. The question is, are we really remembering the lessons from last decade? The answer should not be given just by governments, but by corporations and consumers.


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