Global Economic Crisis Wreaking Havoc on Shipping Industry

One accurate and currently chilling indicator of the health of the global economy is the state of the global shipping industry. For the first time in its history, the shipping industry has stopped growing and, in fact, is shrinking. In the first six months of 2009 alone, the shipping industry declined by close to 16 percent.

Demand and prices have collapsed and ports are filling up with fleets of empty freighters. The largest container shipping port in the world, Singapore, has miles of idled ships riding at anchor not far from its harbor facilities. The crisis has fueled cut-throat competition and not all companies will survive. In the near term one of the world’s best managed shipping companies, Germany’s Hapag-Lloyd, needs 1.75 billion euros to stay afloat.

According to Spiegel Online the new giant ships are now much too big for the cargos they transport by sea, and often they sail half-empty — if at all. Billions are being spent to expand ports to handle a boom that no longer exists. Leading shipping line operators are on the verge of bankruptcy, as are shipping banks and charter shipping companies. The industry, once one of the biggest beneficiaries of globalization, now threatens to turn into one of its chief casualties. The shipping situation places a heavy burden on German shipping operators and German banks that service the industry as German companies own about 40% of the world’s shipping capacity.

“There has never been a crisis like this before,” says Reinhard Lange, the CEO of Kühne + Nagel, the world’s largest sea-freight forwarder. Shipping line operators alone are expected to suffer combined losses of $20 billion in 2009. Those who think that a recovery is at hand must not be aware of the extent that the global economic crisis is wreaking havoc on the shipping industry.

It is not just the ship owners that are at risk. At major ports worldwide governments have spent billions to expand facilities that are not now needed. The investors and banks involved with these facilities will likely take large scale haircuts as it would take years if ever for shipping demand to catch up to existing and under construction capacity.

To read a well written article about the state of the shipping industry and its importance in gauging the health of the world economy go to Spiegel Online. You will be hard pressed to see any sign of green shoots in the article.