It seems that it’s not just us at Shippo who are worried about the state of the shipping industry. Following our article on shipping lines building huge ships that aren’t needed have been a number of articles in the shipping press reflecting our views.
Domino Effect
One industry expert, Ingvar Bergman, took the idea further to view the wider picture of how the uncontrolled building of ever-larger containerships would affect even the healthy trade routes around the globe.
When the huge vessels are built with seemingly no imminent requirement then more space on the vessels is available than can be filled by the number of containers being moved on that particular route. That drives the price down as supply outstrips demand.
What about the ships previously occupying the route that these monster ships now serve? They are still fairly new and pretty large so are moved to a route that has less traffic. This causes a problem for the new route, which until now was healthy and the rates stable. With all this new space on the ships supply now outstrips demand here too.
Surely low rates are good?
Consistently low rates are great news for importers, however, that’s not what’s happening. To make up for the losses that come from plummeting rates, the shipping lines are constantly implementing rate increases. One day a container could cost £1500 to ship and the next day the very same container costs £2000 before tailing off again a week or two later.
Rates all over the place
What’s the best way of mitigating this hugely fluctuating rate so you, as buyers of container space, who drive the industry by moving goods around the world can effectively budget for your shipping costs?
Ingvar Bergman suggests that you should not pay less that a certain amount for your freight but I don’t know a single business that would pay £1700 for a container if they could pay just £1500.
Yasumi Kudo, Japanese shipping giant NYK’s president said that “We must accept that, with the exception of car carriers and certain special vessel types, oversupply is the usual state of affairs for the majority of vessels”.
We doubt that merely “accepting” this fact will help the industry. Private cartels between the shipping lines would be illegal. Surely, they should just stop building more ships?
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