As the shipping industry copes with fears of eroding cargo-transport demand, such worries reportedly are now killing the race to build bigger and better transit vessels.
A shipping consultancy said that pursuing yet another big increase in size wouldn’t be cost-efficient, The Financial Times
reports, which could end up being good news for the industry.
“Up to now, shipping lines have found that the larger the ship is, the cheaper it is to carry each container. The capacity of the biggest container ships afloat has risen sharply in the last five years and more than doubled since 2000,” the FT explained.
“But Drewry Shipping Consultants
said the next step-up in size would impose such significant costs on ports that they would outweigh the advantages of moving cargo in ever-larger vessels,” the FT reported.
The FT explained that the rush to build bigger and better ships – to lower overall cargo-transport rates – since the financial crisis has actually ended up hurting the industry by creating more capacity than needed and driving down fees.
Tim Power, Drewry’s managing director, told the FT that any ships bigger than current top size would only pressure ports to also purchase bigger cranes to accommodate the wider width. Ships of wider magnitude would also force ports to spend more on dredging since the ships need deeper water.
“When we don’t need to build the next biggest size, that should make a large difference to ordering and, therefore, the balance of supply and demand, which could revitalise profitability,” Power told the FT.
And the shipping industry can use any help it can find.
A key gauge of global trade, known as the Baltic Dry Bulk Index,
has recently been hovering near record lows in an ominous sign for the global economy.
The big question is whether the weakness of the commodities-based track will erode the consumer-supported track. Considering freight can be both a leading and lagging indicator, economists, shippers and transportation providers are watching what’s moving on the road, rails and ocean.
One problem: A freight recession is difficult to define. “Where I’ve heard the term ‘freight recession,’ it is most typically used to mean a general weakness in freight volume demand,” Paul Bingham, an economist and vice president at Economic Development Research, told joc.com
. “Sometimes it is even more broadly used to refer to the supply-demand imbalance by mode, negatively affecting earnings potential for carriers.”
If a freight recession can be defined as two or more consecutive quarters of year-over-year volume declines, parts of the U.S. transportation economy are certainly there. But freight recessions don’t always correlate with actual recessions,
Deutsche Bank Market Research analyst Robert Salmon noted in a Jan. 25 note to investors. “Freight volume declines signal recessions, but false positives are prevalent,” he told joc.com
. “While we cannot definitely say a U.S. recession is imminent, recent weakness in freight volumes supports a cautious outlook.”
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