As the Water Churns

These past couple of weeks showed serious signs of déjà vu for the shipping and trade sector. Just when you thought it was safe to allow your confidence to rise a little for the upcoming peak season and remainder of 2011, the world turns topsy-turvy again.

On the national scene, our government continues to resemble nothing more than one of my wife’s nursery school classes or the kids-in-the-car-on-a-long-summer-driving-trip. You know what I mean: “He touched me. No, I didn’t, he breathed on me. I did not, she looked out of my window. No way, she took my toy without asking.”

OK, so maybe I’ve got it wrong, it’s neither nursery school nor summer driving trips, but rather it’s Nero fiddling while Rome burns. I guess we could have seen this coming. As the saying goes, we get the politicians we deserve when we vote for them.

However, if the adults don’t show up soon (and very soon after you read this), all bets will be off for our economy and probably for most of the rest of world as well.

As July draws toward a close, we’re all hoping for a rousing, hectic peak season. That would be great, but as things look now, it appears unlikely. With the New World Alliance suspending a vessel string in the crucial Pacific Southwest lane, we have an unspoken acknowledgement of excess vessel capacity.

The Drewry Container Rate Benchmark fell below $1,650 per 40-foot container for the Hong Kong-to-Los Angeles trade lane in the week of July 16, the lowest this indicator has been since January 2010 and marking a second straight week of decline.

The peak-season surcharge, originally set to take effect on June 15 was delayed a month — and until Aug. 1 by at least one major ocean carrier.

There also are reports of significant rate softness in Asia-Europe trade lanes, with at least one notice of rates falling below the $1,000 level.

None of these signs bode well for either the former peak-season surge or the remaining months of 2011.

And if that isn’t enough, there’s more. Moody’s Investors Service recently downgraded the global shipping industry’s outlook to “negative” for the coming 12 to 18 months.

The optimists among you may be somewhat heartened that Moody’s was one of the rating agencies that didn’t see the real estate and stock market collapse of 2007-2008 coming, so maybe it’s wrong this time, too. Moody’s, it also should be noted, has at least partly based this downgrade on its predictions of overcapacity in the dry bulk sector, rather than in containers, so this may provide some succor to some of those in the container shipping market.

If not, and you’re looking for some good, or at least slightly better news, there’s always the recent forecast from Macquarie Equities Research that “weak inventory restocking will produce a summer-fall peak season “unlikely to inspire” higher rates. Unlikely to inspire? Is that so? I don’t know about you, but I am suitably uninspired.

But wait, there’s more: Macquarie said volume is “fairly robust” (how much is that really?), but that a “benign” pre-holiday shipping season is expected for August through October (run that by me again).

Stay with me, there are three more: The same guys “consider it unlikely that peak-season volumes will be sufficient to stimulate a meaningful upturn in freight rates;” they don’t expect a surge in restocking during the second half of the year; and their “analysis does not suggest that container volumes … will benefit from a meaningful increase in inventory levels.”

By now, I’m sure you’re all feeling much, much better, and I’m so pleased to have been able to bring this news to you.

Oh, and by the way, Maersk Line CEO Eivind Kolding says the container shipping needs to change now if it’s to secure its license to operate in the future. “The container shipping industry stands on the brink of an era-defining moment, and we face some fundamental challenges,” he said.

I think he’s probably correct, but I doubt many of his competitors have the wherewithal or resources to keep up with Maersk’s industry-leading pace and capital investment capability. It will be interesting to follow the reactions to his challenge.

A final sad note: Last week marked the passing of Harold Sachs, the former director of the Fashion Accessories and Gemini Shippers association, at 86. No one who ever visited this long-time industry personality at his Empire State Building office will forget him.

Barry Horowitz is the principal of CMS Consulting Services. Contact him at 503-208-2232 or at barryh@cms-cs.com

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