Today’s Wall Street Journal has an interesting article about how the global economic downturn and financial meltdown is impacting shipping. John W. Miller wrote “Shipping Lines Sail Uncertain Seas – Global Weakness Sends Rates Tumbling With New Vessels On the Way; Some May Become Cruise Ships” (free content)
Last year, the basic price of shipping a large container of goods from Asia to Europe, the world’s busiest route, was $2,800. This week, with demand plunging amid a worsening economy, that price was an unprofitable $700.
Unfortunately, the news gets worse.
Rates for ships heading from Europe to Asia are even more depressed than the reverse trip — about $200 per 40-foot container. These days, 60% of containers making that trip are empty, reflecting Europe’s trade deficit with China, which stood at $223 billion last year.
Yikes! I’ve never run a shipping company but I think it’s the understatement of the day when Eivand Kolding, chief executive of Copenhagen-based A.P. Moller Maersk AS, the world’s biggest shipping company by sales, is quoted saying that these rates are “unsustainable.”
Miller points out the challenges that large companies face when they have to make long term significant capital investments like shipping companies do. And there are some large orders hanging out there.
Marseille-based CMA CGM SA, for example, has placed orders for 80 ships, at a total cost of roughly $1 billion, to complement the some 400 it already runs. Geneva-based Mediterranean Shipping Company SA is scheduled to receive 57 ships, adding to its 427. Maersk received 15 vessels in the first half and has 48 ships on order for delivery by 2012.
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