Another tough year for the shipping industry has passed. If you are one of the regular readers of our blog, you might recall my article from the first month of 2012, where I expressed my thoughts on what was going to happen in the year that was ahead of us – and unfortunately I was right. Except, one of the main points was not allowed to happen. No carriers went out of business. Well, the main reason for that are the external factors – where certain carriers got financial support either from a government or a government related private sector. I believe that at a certain point in business, you either need to cut that arm off or the infection will just spread to the entire body. Instead of cutting off the arm in 2012, we lived “with an infected body” where services got suspended, companies downsized and continued to let go off workers, while carriers tried to increase the rates with the reasoning of “sustaining the level of service”. Of course I wouldn’t like to see any company/carrier go out of business, but this way we all just struggle with it in the short term and the long run.
Now 2013 is officially upon us, so are you ready for the blue skies and shiny days? Don’t get your hopes up, buddy. We still have struggling economies all around the globe. I’m sorry to tell you this, but this year will not be better than last year. This year we will again see unnaturally filled vessels (by either idling vessels, slow steaming or cutting space on purpose etc). We will again see General Rate Increases that will be implemented only for the purpose of ‘not letting the rates decrease further’. And it will again be very tough for everyone to calculate their actual shipping cost since the entire industry will only have 15-30 day rate validity– especially for imports from China.
I think ocean freight wise, US Exports will be more stable, because I don’t think there is further room to drop the rates, and considering the market conditions we will not see a jump in demand. What we are mostly going to see is, whenever carriers see an opportunity to increase the rates they will follow through, then some of their competition will oppose, causing minor chaos and then the carrier who initially increased the rate will bring their rate back down to where they started. So again this will create extra struggling and fighting among the shipper/carrier/NVOCC triangle.
Being part of a company that continued to grow in 2012, I am hopeful despite all the facts above, that the companies that are flexible, service oriented and follow the market trends well, will survive another challenging year.
About M. Can Fidan
what make things worst is that Capacity will increase by 6% and the E class ships of Maersk will start operations in 2013
but we saw forcast lines’profits could reach $5bn in 2013
Dear Can,
I fully agree with your comments when you state that no carrier went out of business in 2012 due to support being provided by the governments or government linked private sector. Indeed, some companies, such like CMA-CGM had been financially taken onto the safe shores by the French Government a few years ago, followed by private sector interference that relieved the financial stress on the company.
However, let’s not forget the fact that majority of the ship owning business is largely supported by the banks, hedge-funds, as well as private funds (such as German KG which also went upside down post 2008 credit crisis). These institutions invest heavily in the ocean shipping market. So basically, when a shipping company goes bust it is actually the banks, funds and investors’ money in most cases. Since they know they will also lose all the money they invested in a company going bankrupt, they try to keep it alive by re-structuring efforts with aim that the company will work, generate business so that they can save, if not all, but at least some of the losses. In other words, it is not easy to let a big guy fall because when that happens, others get hurt too. One critical and common mistake that is done by the investors when they re-structure such firms, is to let the old (failed) management still to run the show.
In 2013, still credit sectors are in bad shape, I expect to see a few big mergers on dry and break bulk segment as we saw in 2012. These will be necessary moves in the market as still too many players, too many ships but not enough demand on tonnage. BDI is still low-mid 800s, meaning freight levels to move basic commodities are very very low thus many shipowners are struggling to balance their operating costs. We are all on the same boat and will need good luck in 2013.