Global Trade Slowing Warns World’s Largest Container Shipper

Peter’s Commentary:

The Baltic Dry Index has collapsed to historic low levels, indicating a slow down in global trade. Indeed, South Korea’s Hyundai Heavy Industries, the world’s largest container shipping company, has just reported losses of $3 billion in 2014. Note that in 2013, the same company reported profits of $730 million.

And this is not just due to an over supply in dry bulk ship building. It is due to a decrease in global trading growth rates.

From ZeroHedge, Tyler Durden:

Unfortunately, as Søren Skou, Maerk’s CEO, admitted when he warned that global trade growth could slow this year from recent 4% growth rates, as Chinese, Brazilian and Russian economies disappoint, the Baltic Dry is still not only relevant and accurate but telling the real story of global growth, or lack thereof.

As the FT reports, container demand rose by about 4% in both 2013 and 2014 and Maersk Line, the Danish group that ships about 15% of the world’s seaborne freight, expects it to increase 3 to 5% this year. Actually make it 3%. Or lower.

“I’m personally more towards the low end of that,” Søren Skou, Maersk Line’s chief executive, told the Financial Times. “Growth from a historical perspective is quite sluggish. It has a huge impact for us as an industry.”

Furthermore, in the ongoing debate whether the collapse in crude prices is due to excess supply or a global contraction, this is what the world’s biggest shipper thinks: Mr Skou called the halving of oil prices in the past year “a net positive for container growth” but nonetheless said the opposing forces were potentially greater.

In other words, yes supply isn’t helping, but it is the lack of global demand that is pushing equilibrium levels lower, aka global deflation.

“The economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great,” he added.

The 4% world growth figure is important. At that figure and below, the shipping companies experience severe problems.

“Before if you acquired too much capacity you could kind of work your way out of it. In a 4 per cent environment capacity decisions take on a different perspective if you get it wrong. The good old days aren’t coming back,” he added. <More>

As mentioned before, we can expect to see mass container shipping company bankruptcies.

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