... consider the woeful state of international transport. The container shipping segment is reeling from a combination of massive overcapacity and plunging demand that has sent rates to all-time lows and forced the Feb. 4 shutdown of German ocean carrier Senator Line. Senator, a mid-sized operator and a major user of container slots chartered from South Korean parent Hanjin Shipping Co. and its partners, is believed to have been Germany's second-largest containership company.
Senator, in business since 1987, only made money in one year, 2007. When the roof fell in late last year and container rates subsequently hit historic lows, Senator threw in the towel.
Senator is one of the first container lines to go under as well as the largest so far. But experts doubt it will be the last. Philip Damas, division director for U.K.-based firm Drewry Supply Chain Advisors, says the liner industry has dug itself a hole that may take up to three years to climb out of. Already, container oversupply has resulted in 500,000 twenty-foot equivalent units (TEUs) being laid up worldwide. Despite projections of continued weak global demand, 1.5 million TEUs of new capacity will enter the market in 2009 and another 1 million will hit the water in 2010, Damas says. With such severe oversupply, he says, it's "only a matter of time" before vessels get laid up and more carriers close their doors.
Rates to ship a twenty-foot container between Asia and Europe have fallen to somewhere between $100 and $300, from more than $1,200 less than a year ago. Paul Bingham, managing director, global trade and transportation for consultancy IHS Global Insight, says he has heard from sources that some lines are not charging any base rates, and are only levying fees for port handling services and bunker fuel adjustments. Bingham says he couldn't confirm the reports but adds such a scenario is "conceivable" if a carrier is desperate for short-term revenue.
In the skies, the situation is no less bleak. In December, traditionally a decent month for international air freight, volumes fell an astonishing 22.6 percent, according to the International Air Transport Association. The declines were paced by 20 to 30 percent fall-offs in export volumes from the United States, Asia, and Europe, IATA said.
The December decline was the latest chapter in a precipitous second-half decline that pulled overall 2008 freight volumes 4 percent lower than 2007 activity, IATA says. Hard as it may be to believe given the current economic conditions, international air-freight volumes in the first half of 2008 actually grew by 4 percent over the same period a year ago.
IATA says shipping activity has yet to bottom out, adding that it may end up revising its current 2009 projections downward by another 5 percent.
Air freight faces a double-whammy. Not only is it hurt by declines in overall demand, but it faces additional pressure as cash-strapped companies seek less-expensive shipping alternatives to moving their goods by premium-priced air transport.
