CarriersÍ conundrum

CarriersÍ conundrum

Those who were around for the shipping industry's mid-1980s bust recall the sight of a half-dozen United States Lines' Econships, the largest container ships then afloat, tied up for months at idle piers in Manhattan and Brooklyn.

The current economic recession is producing a new wave of layups, as carriers desperately seek places to stash vessels that suddenly are in oversupply. Operators are slowing vessel speeds, eliminating strings or services, returning ships when their charters expire and laying off staff.

As Peter Leach reports in this week's cover story, none of those actions is likely to prevent a wave of red ink from washing over the next few rounds of carrier financial reports. Like their customers in manufacturing and retail, ship lines have suddenly found themselves with more assets than demand can fill.

Although it's becoming apparent that the current downturn will be more severe than many expected, this isn't the first one that the industry has encountered. Shipping has always been characterized by booms and busts -- and in recent decades, mostly busts.

Do carriers ever learn? It's a legitimate question to ask. But while it's easy to criticize the carriers' near-simultaneous decisions to order big new ships, a word must be said in the lines' defense. Their ordering binge, like many decisions, seemed like a good idea at the time.

Ships are built to operate for 20 years or more. Through most of the last decade, all signs pointed to long-term growth in container volume. Global sourcing was established and thriving. The Panama Canal was being expanded to accommodate 12,500-TEU ships. Faced with this picture, a logical case could be made for carriers to add tonnage that would enable them to meet customer demand, and optimize the ocean segment of their services.

Generally overlooked by the carriers, and nearly everyone else, was the extent to which the economic boom was based on a global gusher of easy credit. This excess liquidity inflated the prices of housing, stocks and commodities, and fueled a binge in purchases of consumer goods that filled millions of containers.

Now the credit bubble has burst, the painful process of de-leveraging has begun, and economic confidence is in short supply. Last week's Journal of Commerce reported on the credit squeeze affecting many international shippers and consignees. Vendors and suppliers have become more selective about their trading partners, and carriers and cargo interests are asking more questions about each other's stability.

Until the de-leveraging runs its course and confidence and credit are restored to normal, it's going to be a rough period for all concerned. Until then, carriers are going to struggle to fill -- and pay for -- all those ships.