“To make matters worse, lines are coming under pressure to quote all-in prices rather that split ocean rates from currency, bunker and terminal handling surcharges. As rates slide, so they are also starting to incorporate the additional charges that were being levied separately”.

The only think I can think of is that they are telling us that the rate drop is not the whole story. Just like homebuilders would throw in a new car with the McMansion as a way to hide the purchase price discount, the shippers are throwing in a lot of benni’s.

Yves also makes mention of the bigger shippers pushing for ‘all-in’ rates. This has been seen on a less drastic scale in the US since the 1998 OSRA. I think that quite a few lines will unfortanately have to bite the bullet and take the hit for a year or two, but in the long term that is an unworkable commercial environment. I’m not sure about the abuse of credit, but all these deals being carved out by the big multinationals will be made up for on the backs of medium and small sized shippers and is a grave injustice …brought on in part in the pursuit of eliminating ‘market distorting shipping ‘cartels’.

Europe/Asia Eastbound rates are always lower reflecting the trade inbalance. This long standing trend even more pronounced on US/Asia eastbound market where several years ago the rates were USD 0/20′ and USD/40′+ THC. Winston: Ocean Carriers have a lien against the freight they carry and if a container is discharged on the quay unable to be delivered- the carrier can and will action off the contents of the container to recover freight and demurrage charges, unless the shipper guarantees the costs and either diverts or returns the cargo. It is ironic that the EU just removed anti-trust immunity for shipping conferences. This ‘pro market’ directive will prevent owners/operators from taking steps the bloc exemption allowed for that would reduce serious interrputions to trade.

Overall trade will not stop (liner, dry, or wet). The losses will be taken by the current owners (and their banks). Ships will be arrested and auctioned off, to trade again for new owners.

A quickly depreciating asset and lots of leverage is the mode, it seems, for quite a few asset classes…

Presumably they’ve been assuming that in the equation Y = C + I + G + NX, NX, the net exports, will provide the extra nitrous oxide for the global economic engine. But if letters of credit remain unavailable and most of the shipping companies default and collapse, we may get the equivalent of modern-day Smoot-Hawley tariff simply because no shipping companies will want to take the risk of carrying cargo in the current credit crunch.

In that event, we’d be back with growing G, government spending, in the above equation, to dig our way out of this hole. That smacks of 1932 and paying people to fill up ditches that other people previously got paid to dig. Double plus ungood, Winston.

Matt

How long will shipping companies, the ones that do not go bankrupt, wait after the recession to contract for new ships to be constructed?

This is an excellent example of an industry that, once it grinds to a near standstill, will not be easy or quickly restarted.