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HomeIndustry NewsThe Contribution of Shipping to Globalization and its Deep Crisis

The Contribution of Shipping to Globalization and its Deep Crisis

Globalization is under attack, world trade slows down, and the weakest rings of this delicate and complex chain begin to break (the South Korean shipping line Hanjin has been the most evident example.) This is just a taste of the new world, with an asphyxiated growth, that lies ahead.

The shipping industry is in pain.

For the past 10 years, the steamship lines have been building ever larger vessels, forecasting the booming of the global market with an exponential growth. It didn’t happen, and the bubble has burst.

Since 2009, over-construction of ships has continued contributing to drastically-decreasing margins of the carriers because of overcapacity. Today 11 large companies remain, if all the acquisitions/mergers are approved by the involved regulators, to divide the global pie, and most of them – the ones which make their financial results public – have been in deep crisis for the past 6-7 years.

The mechanism has been hellish, because they tried to gain market share regardless of profit margins. To increase overall capacity, carriers have begun to build more and larger ships (Panamax, Post-Panamax, Super Post-Panamax, etc.), based on an expectation of increasing demand. The global market grew, but less and less. If between 2005 and 2010, the growth was 8%, in the next five years by half, it was between 4.5 and 5%. The result was an offer almost twice the demand. From there, a new vicious cycle began: to fill the ships, the ocean freights dropped, while the loss in profit continued to get worse and worse.

Just imagine what will happen in 2017’s outlook.

As per the WTO, “…World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%, according to the latest WTO estimates. The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009…” They also added, “…2016 has been the first time in 15 years that the ratio between trade growth and world GDP has fallen below 1:1…

Gerry Wang, Chief Executive Officer of Seaspan, the Hong Kong-based container-ship leasing company that had three vessels chartered to the distressed line, said during an interview with Bloomberg that “the fallout of Hanjin Shipping was like Lehman Brothers to the financial markets.” He added that “It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalization.

The only way to keep up with these changing conditions is to look ahead and anticipate the market trends, seek the opportunities out there, and catch them with no uncertainty. Diversifying the offer might be the key to success in this stressed market, and we at MTS are ready and prepared to provide stability and solutions to our customers.

Michele Marinellihttp://www.mts-logistics.com
Michele was born and raised in Italy and spent most of his early years in Bologna, a nice and vibrant city in northern Italy. He graduated from the University of Bologna with a master’s degree in industrial Engineering with a specialization in Logistics and Production in 2007.  Michele worked for a French-based Corporation in Bologna for almost 6 years as Project Manager. In January 2014, Michele moved to the U.S. for a fresh start in New York, and worked for 3 years for one of the major Steam Ship Lines as an Export Commercial Liner, in North European trade. He started at MTS Logistics in January 2017 as Sales Executive. Michele is currently covering and developing several areas: Texas, New York/New Jersey, Georgia, South Carolina, and North Carolina. His first priority is to create strong relationships based on trust, competence, and honesty. Michele loves to travel and does so for at least twice monthly to meet his customers/prospects in person to hear face-to-face how he can help them by providing the best service possible. Fun Fact: Michele, despite being Italian, loves basketball (watching and playing) instead of soccer and the NBA is his secret passion.
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