The
Impact of the Economic Crisis on the Shipping Industry and Trade Consequences
by Joan M. Bondareff, Of Counsel, Blank Rome LLP, Washington, DC
{With thanks for the invaluable assistance of Janice Weaver, Director of Policy,
U.S. Maritime Administration}
The shipping industry is not immune from the current economic recession. In
fact, companies are laying up container ships and laying off workers around
the world. Bulk carriers have also not fared well as exports of dry bulk goods
have declined. Tanker companies are doing somewhat better, but this is just
in comparison to their brethren.
In December 2008, the
World Bank predicted that world trade would fall by 2.1 percent in 2009 for
the first time since 1982.
The Obama Administration just took office and one of the first steps it will
take to improve the economic situation is to get Congress to enact a major
stimulus or economic recovery package. Some elements of the package could
beneficially affect the maritime industry, including new port infrastructure
projects, improvements in the title XI loan guarantee program and possibly
grants to train unemployed maritime workers.
We do not yet know what the new Administration plans to do with pending trade
agreements, except we can assume a greater emphasis on worker rights and environmental
protection.
The recovery of the U.S. economy and a proposed increase of four million new
jobs will certainly have beneficial impacts on our trade and therefore improve
the decline in shipping rates and new ship construction.
The experts who looked back at 2008 found fairly disturbing news in the shipping
industry, which they evaluated on a sector-by-sector basis.
The largest declines came not surprisingly in the area of container ships.
Long the pride of the oceans, according to recent trade press reports, "unemployed
capacity is now at 165 vessels," or more, with the "biggest casualties
[being] ships of 1,000 teu - 2,000 teu capacity, [or] almost 60 now unemployed."
{2 From 12/31/08 Britannia News Brief, article by Janet Porter.} Ironically,
and sadly, the downturn comes "at a time when the fleet is growing at
record speed, with total capacity passing the 13 million teu level just before
Christmas [2008]." { 3 Idem.} According to Paris-based consultancy AXS
Alphaliner, the world's box fleet is projected to hit 14 million teus by August
2009. {4 http://www.cargobusinessnews.com,
week of Jan. 5-9, 2009.}
For dry bulk carriers, the trade press reports that "the situation is
even more daunting". { 5 By Alkman Granitsas, Dow Jones Newswires, reprinted
in FOCUS: "Financial Crisis Seen Cutting Shipping Oversupply", 11/6/08}
Time charter rates for the largest of the bulk carriers, with a displacement
of more than 160,000 DWT, "have fallen from more than $200,000 a day"
in August 2008 to "less than $10,000 a day" in November 2008. {6
Idem.}
At least the tanker market
has held steady. In fact, for most tanker types in 2008, "average earnings
surpassed boom times last seen in 2004." {7 Michelle Wiese Bockmann,
"Record Year for Tankers Despite Financial Crisis", reported in
Britannia News Brief, 12/31/08.} However, much tougher times are forecast
for 2009. {8 Idem.}
There is also a potential boomlet in the market for tankers carrying oil to
Europe and the United States which is attributed to the requirement for all
such tankers to be double-hulled by 2010. As the Dow Jones forecasts, "the
biggest surge in double-hull vessels will come next year as tanker owners
race to meet that deadline."{9 Idem.}
The global credit crisis has resulted in a rapid decline in world trade that
has rippled through all segments of the transportation industry. The recent
boom years and the expansion of the Panama Canal led to an oversupply and
an over-commitment to the production of new and larger container ships. Many
of these orders may be cancelled for lack of financing. But, as the world
economy improves, we can see the resurrection of new orders and increases
in world trade.
Depending where you sit,
company owners range from optimistic to pessimistic in the short and long
term. For example, Maersk chief executive Nils Andersen has forecast that
"global container shipping volumes will contract this year [2009] and
the market will be tough into 2010." {10 www.lloydslist.com, 14 Jan.
2009.} On the other hand, Evergreen Marine, the Taiwanese global shipping
line, has reportedly announced plans to order 100 containerships at a cost
of $5.5 billion as part of a vessel replacement program, according to press
reports from Taipei. Evergreen expects the global downturn to start picking
up in 2012. {11 Reported in http://www.cargobusinessnews.com,
week of Jan. 5-9, 2009.}
The Obama Administration is committed to the creation of up to four million
new jobs. Some of these may well be in the maritime industry in the form of
the construction of new port and intermodal projects, new title XI loan guarantees
for building double-hull tankers, new assistance for U.S. companies interested
in short sea shipping, and grants to retrain unemployed maritime workers.
If the Obama stimulus package is successful and is mirrored by similar stimulus
packages of European and developed nations, we may look to an improving economy
in the second half of 2009 with more gains in 2010. As the economy improves,
the shipping industry will be the beneficiary. As they say, a rising tide
lifts all boats.
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