More Collateral Damage from Globalization–Container-Shipping Companies

The over-optimism by business for globalization has scored another victim, this time a very rich one–the huge container-shipping lines that were designed to transport this world trade.

Costa Paris reports for Wall Street Journal today:

bn-qn785_1031fr_gr_20161031115756 Rodolphe-Saadè

By COSTAS PARIS, Oct. 31, 2016

None of the world’s biggest container-shipping companies is likely to post a profit this year,[Rodolphe Saadé,] a top executive of French shipping giant CMA CGM said Monday. . .

Container shipping, which moves things as diverse as tablet computers, clothes, heavy machinery and food, has been strangled by two years of rock-bottom freight rates that have caused some operators to go bankrupt and others to seek partnerships to stay afloat.

“Consolidation will continue because small shipping lines will not be able to survive,” Mr. Saadé said. “The small to medium operators will be looking for a big brother to acquire them.”

hanjin-shipping-tianjinHanjin, the South Korean container-shipping line, has declared bankruptcy.

Mr. Saadé said Hanjin’s collapse had somewhat stabilized tumbling freight rates that have averaged less than $700 a container a month since the start of last year on the benchmark Asia-to-Europe trade route. Dozens of Hanjin ships have been idled, removing capacity that has pushed freight rates slightly higher. But many of those vessels are being bought by other operators, and analysts say they will soon start sailing again, causing freight rates to start falling.

Shipping executives estimate the top 20 operators will post combined losses of as much as $10 billion this year as a glut of tonnage in the water continues to depress freight rates so much they barely cover fuel costs. They say $1,400 per container is the break-even point.

Mr. Saadé said he sees growth in moving seaborne cargo to the U.S. as “the economy is doing well and they import quite a lot.” Other areas of growth include Australia and Southeast Asian countries such as Vietnam, Malaysia, Indonesia and Thailand—as their low labor costs gradually entice makers of clothes, shoes and household goods to shift their production bases away from China. (Turnabout is fair play, eh?)

He said African and South American oil-exporting countries are importing less because of falling oil revenue, with no clear growth prospects in sight. European trade remains anemic, but prospects are getting better, Mr. Saadé said. He added that Chinese growth is likely to be moderate. “There is a slowdown, but the world [trade] is not collapsing” he said.

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