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Shipping industry in crisis

World Cement,

According to reports, shipping rates could fall by as much as 50% before the end of the year.

Cutting demand
The global recession has hit shipping hard, and despite the early signs of recovery elsewhere in global trade, analysts are predicting the second crash of the year for the shipping market. China’s recent decision to curb steel and cement output means a drastic reduction in raw material imports, which will certainly have an impact on shipping, since the country reportedly produces two out of every five tonnes of steel and is the world’s biggest cement exporter.

New capacity
Meanwhile, a record 146 capesize ships will be added this year, significantly reducing shipping rates to as low as US$18,000 per day, according to analysts’ predictions, from earlier highs of US$93 197 in June. It seems that overcapacity is as much a problem for the shipping industry as it is for the cement industry.

Major lines suffer losses
Nippon Yusen K.K., Japan’s largest shipping line has forecast its first loss in 23 years, and is making efforts to control the profit haemorrhage by cutting costs, reducing its supply of ships by approximately 25%, and raising container rates between Asia and the US.

Earlier this year, Evergreen Marine, Asia’s biggest container line, recorded a loss for the third quarter in a row in the quarter ending 30 June. Other lines are suffering similar fates, and stocks are falling.

Transpacific Stabilization Agreement
In July, a group of 14 shipping lines that between them operate half of the world’s container vessels, produced a ‘voluntary guideline’ to attempt to raise rates by US$500 per 40 ft. container. Now, the ten members of the westbound TSA are pushing to increase bunker fuel surcharges beginning 1 October 2009 to address the high costs faced by the industry. Whilst traders might be enjoying ‘bargain deals’ right now, it is clear the industry will not be able to stomach it for long. Rates will rise, more ships will be cut, and eventually balance will be restored, although not, according to Andreas Vergottis of Tufton Oceanic Ltd, until after ‘a lot of time and a lot of pain’.

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