How bad have trade gotten for shipping stocks? | Investment Moats Skip to Content

How bad have trade gotten for shipping stocks?

I read this article from Lloyd’s List and it looks like i might have been optimistic about shipping companies. This seem to be worse than the what this industry is facing in the 1997 Asian Financial Crisis. To all those looking to bargain hunt shipping stocks or shipping trusts: take a look at the financial strength of the company and its ability to pull itself through this crisis before doing any addition.

FREIGHT rates in the Asia-Europe trades have crashed to record lows as consumer demand continues to crumble, with the crisis compounded by the first signs of customer insolvencies.

A 20 ft container could now be shipped from Hong Kong to Hamburg for as little as $350, excluding surcharges, compared with around $1,400 per teu last summer.

In all my years in the business, I do not ever remember such difficult trade conditions, said the trade director of a big Asian line.

The last two or three weeks have been a nightmare.

Similar sentiments are being echoed across the industry.

Has it been as bad as this before? No, not in my 20 years, the trade manager at another global carrier concurred.

This is a price war, and we have not seen the bottom yet.

To make matters worse, lines are coming under pressure to quote all-in prices rather that split ocean rates from currency, bunker and terminal handling surcharges. As rates slide, so they are also starting to incorporate the additional charges that were being levied separately.

The Asia-Europe trades, which were the big moneyspinner for container lines last year as volumes expanded by more than 20% and freight rates soared, have been hit by a slump in high street spending that has pushed year-on-year growth close to zero.

The slowdown coincides with the start of a huge newbuilding delivery programme. Analysts are being forced to re-calculate their forecasts for the year as the supply-demand gap continues to widen.

Adding to the extreme trading conditions are demands on lines from shippers for extended credit as the banking meltdown hits global commerce.

Late payments are on the increase, and anecdotal reports suggest that non-vessel owning carriers are beginning to be hit by bad debts and bankruptcies among their smaller customers. The fear is that this situation will snowball, with lines now keeping their cashflow under intense scrutiny.

The latest downturn concides with the start of the tender season, when lines will negotiate 12-month contracts with their customers that will lock them in for the coming year.

The sense of alarm was apparent at last weeks Box Club meeting when the heads of the worlds biggest container lines held a series of top level meetings, with rumours rife in the Geneva corridors that some newbuilding orders will be cancelled because of the liquidity squeeze.

That does not seem to have happened yet, but ordering activity has come to a virtual standstill as banks demand that owners contribute up to 30% of newbuilding costs from their own pockets.

But ships of 9,000 teu or more will soon dominate the Asia-Europe trades, with smaller vessels no longer able to compete as freights rates collapse.

Zim is withdrawing a series of 4,200 teu units from this trade lane, with one source estimating that the cost per 20 ft slot on a fully laden 9,000 teu is up to $100 less than for a ship of half that capacity. When rates are high, that difference is not so noticeable, but in todays market, panamaxes are becoming unviable.

Containership lay-ups are now becoming a distinct possibility for the coming winter, a broker predicted today. Lines are now shuffling services, redeploying ships and seeking out new markets as they struggle to restore some normality to one of the premier east-west trades. But that might not be enough to prevent some ships from being left idle, several sources predicted.

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