Continued from Part One.
According to the Telegraph, over 100 German ship funds have already shut down as the crisis in global container shipping comes to a head, while 800 more funds are threatened with insolvency, according to consultants TPW in Hamburg.
In the UK, Britain’s oldest ship-owner, Stephenson Clark, dating back to 1730, went into liquidation this month, closing the final chapter of Britain’s coal trade and the industrial revolution, citing “incredibly depressed” vessel rates. Like large parts of the German container industry, the firm over-invested in the boom four years ago, betting too much on Asian growth rates.
Germany, however, is said to be the superpower of container shipping, controlling almost 40 percent of the world market; so if collectively they get it wrong, it goes wrong in a big way.
Faced with massive overcapacity following a boom in new vessel construction ordered during the last decade, and correspondingly high levels of debt to fund those vessels, owners are in trouble as volumes are way down as a result of the European crisis and a slowing Asian market.
Container volumes arriving at European ports are said to have plunged in June. Imports fell 7.5 percent from North America and 9 percent from Asia, while flows into the Mediterranean region crashed by 16 percent, reflecting the extent of the recession in Greece, Italy, Spain, and Portugal.
Meanwhile, cash-rich Greek ship-owners who had sold vessels at the top of the market are now buying them back from German owners at rock-bottom prices — the Greek shipping market appears curiously isolated from the rest of the Greek economy.
Market rates for containers have followed shipped volumes, picking up in the spring but recently falling back on weak demand and an excess of capacity. The rates buyers pay for imports into Europe or the US will likely stay flat this year, but in the long run if consolidation is forced on the industry by insolvency or financial strain, rates will rise in the longer term as surviving lines emerge with greater market clout.
The only check on rising freight rates has been competition and overall volumes.
At present, volumes are down so rates are down, but in time as the global economy recovers, volumes will pick up; if rates rise faster due to fewer lines controlling the routes, global trade could suffer and nearshoring will be encouraged.
So much as the Telegraph may take some amusement in Greeks benefitting at the expense of Germans, consumers dependent on the global container market would benefit more from the largest number of healthy lines in the market.