Economic Reality

Lehman Brothers went bust and brought the financial crisis to a head. The shipping industry, which had been on a high for four years, in effect tanked in the same month as the industry could no longer sustain charter rates in the face of collapsing trade volumes and sharply declining commodity prices.

Bulk time charter rates dropped over 90% and container ship charter rates were bringing up the rear. The spending spree on new ships was over, the new orderbook cupboard was bare and shipyards, as well as shipowners and operators, were facing deep losses. The belief that the boom of the last four years was never ending was shattered.

Confidence became a thing of the past. The bedrock of our economic well being was crushed with massive losses in asset values leaving many companies over leveraged and under funded with no sight of an improvement during 2009. Euphoria turned to desperate gloom. Survival has become the current buzzword. Ships are being laid up, employees are being let go, no new investments are being considered and orderbooks are being re-negotiated.

In the bulk trades there have already been orderbook cancellations, fire sales, scrapping and some bankruptcy. In the liner trades, financial losses will be high as everyone fights over market share, forcing prices down to unsustainable levels. Additionally, terminal operators are experiencing lower volume throughputs and pressures to cut prices. They are also faced with abandoned cargo as buyers and sellers face a credit crunch. Everyone is voicing opinions about who will not be around by the end of 2009.

This recession is the worst since 1929, both in its depth and longevity. But wait, recessions come to an end and usually are followed by a burst of trade as re-stocking takes place. Let us not forget, an incredible amount of money was made by the industry between 2004 and September 2008, so perhaps we should not despair excessively.