Global slowdown hits container shipping hard

New report shows plunge in container shipping demand and freight rates

By Dave Hannon -- Purchasing, 10/9/2008 9:49:00 AM

Demand for container shipping has taken a dramatic turn as a global economic slowdown affects a wide swath of industries and markets. The good news for buyers and shippers is that ocean container freight rates have plunged along with that demand.

According to a new report on the container shipping market from London-based Drewry Shipping Consultants, the “strong growth in the container shipping sector is now going into reverse as the credit crunch impacts all the major economies.” Drewry reports that in “every country/region of critical importance to growth rates of container traffic volumes has suffered a major loss of confidence since the beginning of the year. Any sense that some nations could be immune to, or disconnected from, the fate of the western economies seems to have been clearly refuted by developments.”

According to Drewry experts, a year ago, ocean container carriers were making record profits in the Asia-Europe trade but from summer 2008 freight rates on the headhaul market have plummeted and appear to still be in decline. And Drewry’s outlook for 2009 shows a continued decline in demand as more capacity hits the water in the form of newly ordered vessels.

A Wall Street Journal story points out that a year ago, the basic price of shipping a large container of goods from Asia to Europe, the world's busiest route, was $2,800. This week, with demand plunging amid a worsening economy, that price was $700, a level that is “unsustainable,” according to Eivind Kolding, CEO of Danish container shipping giant A.P. Moller Maersk.

“There's a glut of new large container ships entering the market,” said Drewry’s Philip Damas in the Journal article. But Drewry says the plunging demand is not all in the shippers’ favor, as the strategy of slow steaming adopted by carriers to offset fuel costs is slowing shipments and soaking up some overcapacity, as carriers also cut unprofitable routes.

And overall capacity could be impacted further if a wave of mergers hits the struggling market. In late September, Singapore’s Neptune Orient Lines made a bid to buy Germany’s Hapag-Lloyd container shipping business but TUI, which owns Hapag-Lloyd, has not yet agreed to the deal.