Wednesday, March 11, 2009
Shipping industry left with an empty feeling
Wednesday, 11 March 2009
After years straining to keep pace with rising demand, the global shipping industry is suddenly facing a new problem: finding places to park empty planes, trains and ships. From railroad boxcars to giant container ships, the global economic downturn has forced transportation companies to shrink capacity in response to declining demand for raw materials and manufactured goods.
In Canada, both of the country's major railways are being affected by fewer shipments of everything from iron ore to automobiles.
Mike LoVecchio, a spokesperson for Canadian Pacific Railway Ltd., said the railroad has parked 270 of its 1,600 locomotives, including older and less fuel-efficient models that were destined to be replaced.
"Like our counterparts in the United States, we match capacity with demand," LoVecchio said. "As demand has fallen, we have reduced capacity."
The story is a similar one at Canadian National Railway Co., whose traffic was down 14 per cent between Jan. 1 and Feb. 28 compared with the same period in 2008, according to Mark Hallman, a company spokesperson.
It's a dramatic about-face from a few years ago when the global economy was running at full steam and transportation companies were scrambling to secure sufficient infrastructure to handle the load.
Shipbuilders in South Korea, for example, have yet to work their way though a backlog of orders that amassed well before the global financial crisis hit last year, meaning vessels may now end up delivered to customers that no longer need them.
Eivind Kolding, the CEO of Maersk Line, the world's largest container shipper with 15 per cent of the global market, predicted yesterday that the container business would take longer to recover from the economic downturn than other sectors precisely because of the surplus of new ships that will soon be plying the seas.
"More likely than not we will see all liner companies in red (ink) territory in 2009," Kolding said in an interview with Reuters. "Most likely, some liner companies will have to cease business if freight rates do not come up."
Freight rates for the key Asia-Europe routes have plunged as much as 80 per cent since May last year, just as ship capacity has ballooned, according to some estimates. In January, global freight volumes fell 20 per cent.
In response, Maersk will remove up to 25 mid-size container ships from service in 2009, in addition to eight mid-size vessels it took out in December.
Industry rivals Mediterranean Shipping Co. and CMA CGM have also cut several routes.
Kolding said 10 per cent of the sector's fleet is now idle.
"That number will probably go up," he said. "Until that surplus has been dealt with, I don't think anyone will be thinking about ordering new ships."
Meanwhile, available supertankers will outnumber Middle East oil cargoes requiring transport by 25 per cent over the next month, according to estimates compiled by Bloomberg.
Air cargo companies are also hurting. The International Air Transport Association said in January that international air cargo traffic plummeted by 22.6 per cent in December as consumers and companies across the globe drastically scaled back their consumption of goods.
The lone bright spot comes from the closely watched Baltic Dry Index, which measures the shipping costs for commodities.
After bottoming out last December, the index rose to the highest point since Oct. 9, primarily due to grain shipments from South America.
Source: The Star
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