The global shipping industry’s woes

By THE DATA TEAM

FOR many American retailers, Christmas may be cancelled. Last week, Hanjin Shipping, South Korea’s biggest container carrier and the world’s seventh-largest, filed for receivership. Some 66 of its ships, loaded with $14.5 billion of goods, were left stranded at sea.

Since the financial crisis, the shipping industry has been squeezed on both the supply and demand sides: too many vessels have been built and not enough scrapped, while global trade has slowed down. The Baltic Dry index, a measure of freight rates for bulk carriers that carry commodities like coal and iron ore, has plummeted by 95% since its peak in 2008. Even oil tankers are suffering, after a mini-boom last year. But container lines are now also in particularly bad shape. Sending a container from Shanghai to Europe costs half what it did in 2014, according to figures from the Chinese city’s shipping exchange. That has wiped out profits in this part of the shipping business: Drewry, a consultancy, calculates that container lines will lose up to $10 billion this year.

Faced with such headwinds, some firms are trying to bolster their positions by forming alliances. In January 2015 Maersk Line and Mediterranean Shipping Company (MSC) launched 2M, a partnership to share space on their vessels. This April four others got together, followed by six more in May. These three proposed alliances now account for nearly three-quarters of the global market. But so far, these new groups have not managed to reduce overall capacity, as the airline industry has done. As a result, freight rates have continued to fall. A serious programme of scrapping in the industry would be needed for profits to improve. Unfortunately for shipping investors—but to the delight of the firms’ customers—there is still no sign of that.