Shipping industry runs into troubled waters

The financial crisis of the last few months and the ensuing economic downturn are putting enormous strains on the once booming ocean shipping industry.

Benefiting from the past several years of expanding shipping volumes and building ever-larger ships to meet increasing demand to move containers, the shipping industry is now starting to seize up as the demand substantially weakens. As a result, major container shippers, bulk operators and port authorities in China are suddenly suffering badly as the slumping export sector passes on the impact of slumping worldwide demand. Shanghai, one of the world's busiest ports, has cut its container traffic target for the year by 5 percent, blaming this on the global financial crisis and an economic slowdown. With a container volume of 26.15 million twenty-foot equivalent units (TEUs) last year on the back of over 20 percent growth, Shanghai surpassed Hong Kong for the first time in 2007 to become the world's No 2 container port, second only to Singapore. However, such phenomenal growth has been tempered by the ongoing global economic recession. Total container throughput in Shanghai is expected to reach 28.5 million TEUs, less than its earlier target of 30 million TEUs. The port attributed the slowdown to the drop in export volumes and sluggish domestic demand, according to Chen Xiyuan, president of Shanghai International Port Group Co (SIPG), operator of China's busiest container port. Chen said container exports to the US, which account for 20 percent of the city's total export volume, have slid 7.8 percent in the first nine months of this year. In addition, shipping fees have been dropping like a stone, Chen said. The shipping price from Shanghai to Europe, for example, has fallen from $1,000 to $200 per container since the beginning of this year. With the Baltic Dry Index (BDI), a measure of commodity-shipping rates, tumbling 90 percent off its May peak, many shipping companies in China are reportedly keeping their ships idle, because the current prices can barely cover their costs. The situation is just as grim at shipyards. As slowing economic growth cuts demand for steel, coal and iron ore, demand for ships is also falling.
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