The medicine that damages the patient
It can be argued that too much belt tightening may not be a good thing: we can see a parallel with the fiscal measures used to fight excess debt at the sovereign levels.
The global economy today is founded on consumption with the US being the most exposed. Without the consumer spending money the global economy is dead in the water.
The obsession with national debt and budget deficit is missing the point of the economic ills. There is no substitute for spending to get out of a recession. At the government level, job creation to fix the infrastructure is one way, at the consumer level, confidence is needed in the central governments’ understanding of what is going on. Neither of these exist.
The key to recovery is to get consumers to spend money. That will cause the private manufacturing sector to increase employment as it increases sales. The lack of consistent policy in the European Union and the US has led to volatility in the markets, causing further degradation in consumer confidence. As savings are eroded, spending reduces.
Austerity, with its reductions in spending combined with tax increases is leading to higher unemployment and lower spending. Just what we do not need. The cure is killing the patient.
We can see the direct impact in our industry. In the first half of the year, according to Alphaliner, of 20 carriers 16 report financial results. Of these, only four had a positive result and two of those were marginal. Austerity has led to reduced volumes as consumption growth slowed dramatically and excess capacity is leading to lower freight rates. The combination of the two will ensure that for the full year, 2011 will be another disaster for the carriers after their bonanza of 2010.
2010 also caused terminal operators to return to spending. Today a number of regions face excess capacity, including southeast Asia and probably northern Europe with the expansion at Rotterdam and JadeWeser.
Any hope of strong growth in the industry may be but a dream in a world of government induced austerity. There will be little opportunity for re-financing; expect to see some players fade away.
