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www.psi-network.de PSI Journal 8-9/2016 Whilst in 2012, soaring cargo rates and a shortage of capacity bedevilled importers, today it is mainly the long lead times of ships and the increasingly poor and unreliable logistical services that have an impact on the import business. Although low freight rates may be good news for the importer in principle, they stand for the precarious situation of container shipping and an insecure, crisisprone market. The current massive imbalance between capacity and demand has triggered a price war among the shipping companies and is an element of uncertainty that makes long-term planning extremely difficult. FREIGHT RATES ARE HIGHLY VOLATILE To illustrate the extreme volatility of transport costs, first a few figures: In 2012, the cost of a 20’ standard container (TEU) from Asia to Germany rose within half a year from around 800 dollars to 2,500 dollars. After continual ups and downs, the price for the same unit in early 2015 was still 1,000 dollars, at the end of the year only about half the amount, and then it continued to fall to about 330 dollars in early 2016. According to the Shanghai Containerized Freight Index (SCFI), at our editorial deadline at the end of July prices have been appreciating noticeably again and now stand at around 760 dollars per TEU. Tomorrow it may be totally different again. Price differences of more than 20 per cent within a short time are commonplace. MARKET IS MORE PRONE TO CRISIS Container shipping is influenced by various factors. On the one hand, it is strongly dependent on the upswing and downturn of the world economy, which determines the volume of freight (demand for tonnage). On the other hand, it depends on the available cargo capacity of ships (supply of tonnage). Overall, the market is controlled by a complex system of interdependent factors which determine the major parameters for importers, namely freight rates and lead times. If the economy goes through a crisis which thereby reduces the total volume of freight, the shipping companies suffer losses running into millions. For example, the economic crisis of 2008/2009 and its consequences cost the Maersk shipping company about 500 million dollars in the first quarter of 2010. WEAK GLOBAL ECONOMY According to ship owners and experts quoted in the media today, the state of the maritime industry is even more serious than expected, perhaps even more serious than the low point of the crisis in 2009. The main forces impacting the maritime factors are not developing positively, especially the global economic output. The International Monetary Fund (IMF) has again reduced its growth forecasts for the global economy because of the Brexit referendum on United Kingdom membership in the European Union. According to the organisation, global growth of only 3.1 per cent is expected this year. In its last estimate in April, the IMF had expected 3.2 per cent. The forecast for 2017 was also revised downward by 0.1 percentage points and now stands at 3.4 per cent. The World Trade Organisation (WTO) sees world trade burdened with major risks: The end of the growth boom in China, the crisis-prone emerging markets, the economic weakness of Brazil and Russia, but also the increasing instability of financial markets and the persistently low commodity prices have serious growth inhibitors. Although according to forecasts of the German Federation of Wholesale and Foreign Trade (BGA) German exports will grow stronger than world trade at 4.5 per cent, the global demand for freight space (tonnage) will remain at a very low level. CURRENTLY A SLIGHT GLIMMER OF HOPE Lately, however, there is evidence of a slight ray of hope: According to the RWI/ISL Container Throughput Index, world trade shows a slightly upward trend. The Container Throughput Index of the Rhine-Westphalia Institute for Economic Research (RWI) and the Institute of Shipping Economics and Logistics (ISL) rose from 118.9 (revised) in May to 120 in June. Compared with the flash estimate, the value for May was revised significantly upwards and there was also a slight upward revision for April. Overall, the situation in world trade is therefore more favourable than expected a month ago. However, this should not obscure the fact that the current index has reached roughly the level that it had been at the turn of 2014/15. According to a notification on 20 July 2016, the flash estimate for June was based on data from 33 ports which handle a good two thirds of the throughput covered in the index. HUGE OVERSUPPLY OF TONNAGE From the viewpoint of shipping companies, the continued very low demand is met by an enormous oversupply of tonnage, so that the volume of cargo falls far short of the capacity. How did this situation come about? In the years prior to the financial crisis, shipping companies were able to build massive fleets – generously funded by cheap bank loans and ship funds. German banks alone granted ship loans totalling more than 100 billion dollars. Within a few years, Germany had become one of the largest locations for container ships in the world. Many shipping companies 25

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