EC The Story Of Shipping Is Our Economic Story

There was a lot of talk about the supposed oil supply glut around early 2015, for good reasons that only partially related to the supply of oil. That wasn’t the only industry impacted by what was really going on, meaning the falling demand side to the world economy. Shipping companies have faced a supply glut of their own, but one that stretches much further back than the “rising dollar.”

In the middle of the last decade, shippers went nuts though they believed they were being prudent. Global trade was soaring on the winds of eurodollar expansion moving productive capacity all over the world, though concentrated to a good degree around China and Asia. Globalization was a boon to those who could move goods in size because it meant so many goods (and resources) would have to be moved.

In 2007, an astounding 2,905 ships greater than 20,000 tons were ordered from the world’s shipbuilders. US imports from China were growing steadily by 20% at the time, whereas Chinese exports overall were expanding by 30%. Conventional wisdom suggested that goods carriers should expect 2.2 to 2.5x global GDP in terms of trade growth. Clear sailing on that account was widely forecast even as that little subprime problem popped up (economists, echoing Bernanke, said it was all contained)..

The world economy, of course, collapsed in late 2008 which put a temporary halt on shipbuilding. Orders for the same size big ships fell to 1,874 that year, and then just 580 in 2009. The damage, however, was already done and a supply glut of shipboard capacity born.

The price charged for a typical capsize vessel reached $230k per day in 2008, an impressive $180k per for crude oil tankers. By 2012, capsize costs were just $5k per day since so many new ships ordered in that late growth period (2006-08) started to come online. But like the oil story, the world’s shipping context is dominated by the demand side, not supply.

For one thing, despite so many ships being floated in the early “recovery” period most if not all believed it was actually a recovery period. Though they might have to absorb losses, maybe even heavy ones, shippers battened down the hatches and began to wait for demand to catch up. It was, everyone was told, merely a matter of time.