By Ed Zwirn
Just-Style.com, Nov. 11, 2016
The collapse could signal future higher shipping prices for importers of goods from the Far East, added speakers at this week’s Apparel Importers Trade & Transportation Conference, organised by the United States Fashion Industry Association (USFIA) in New York City.
The shipping line declared bankruptcy on 31 August and left some 144 ships holding US$14bn worth of goods temporarily stranded as they were denied access to ports. As a result, retailers and other importers in the US and elsewhere saw their supply chains disrupted just ahead of the holiday season.
“The carriers are in real serious trouble,” said Brian Conrad, executive administrator of the Transpacific Stabilization Agreement (TSA), a research and discussion forum representing major lines that serve trans-Pacific trade in both directions and develops voluntary guidelines for their rates and charges.
“Rates are still below where they were in 2008 [and] it doesn’t help that bunker fuel prices have doubled this year,” going from “US$143 per tonne [metric] last year to the current US$294.5 per tonne,” he said, noting that as a result, shipper profit margins declined 5.5% in the first quarter of 2016 and 9.2% in Q2. “Everybody in this industry should take this situation as a wake-up call.”
This is in part a result of the global economic optimism that prevailed in the early 2000s as “carriers started building ships because they saw continuous financial growth of 8% to 10% in China,” said Brian Moore, director at Maersk Line North America. This outlook began to sour in 2008 with the advent of a global economic slowdown, which occurred even as these new ships were being christened, he said.
The upshot since then has been a consolidation among global shipping companies, both from bankruptcies like Hanjin’s and mergers that have come about as “the smaller lines are looking for somebody to ally or partner with,” said Greg Tuthill, chief operating officer of shipping company CMA CGM Americas.
“The most positive outcome of all this is stability,” said Tuthill, predicting that there will be only 14 global carriers in 2018, down from the 23 that served the trans-Pacific trade five years ago. Of these 14 carriers, the top seven will control over 65% of capacity in 2018 and the top five over 50%, he added.
“With all this consolidation going on recently the question is – is it enough?” said Maersk’s Moore. “New ship orders have almost completely stopped as of this year and scrapping is increasing, but not enough. It is likely to take years to sort out.”
Speakers at the event also warned that international trade deals, particularly the Trans-Pacific Partnership (TPP) and the Transatlantic Trade & Investment Partnership (TTIP), are likely to fall by the wayside following the upset victory of Republican Donald Trump for the US presidency.