Decline in Shipping

One thing a lot of people have been looking at are different metrics for gauging the actual health of the economy and the direction it is headed. Shipping is one such metric, and it doesn't look too good. From the Telegraph:

As owners have seen the rates charged to carry freight plunge, demand for their ships has collapsed to the point that selling them for scrap makes financial sense much earlier in a vessel's life.

In the worst hit sectors, the fall in the ships's value and the rise in the price of steel – driven by rapacious demand from China as it builds itself anew – means that the difference between the prices fetched if vessels are sold on to keep sailing and those if they are broken up for scrap is now minimal.

Cargo ships as a general rule are built to sail for 25 years, yet in the volatile VLCC or "very-large crude carrier" sector, which comprises the world's biggest oil tankers, scrap and resale prices reached parity in recent months for the average 15-year-old ship, according to prices tracked by industry information provider VesselsValue.com.

The article notes that there was a certain amount of overbuilding, but it was due to over-optimism in the strength of the recovery.

Many ship owners, however, are refusing to scrap their ships in the hope of a shock which could resuscitate the market – perhaps some global upheaval which would push up rates against a backdrop of broadly flat global demand for oil.

A serious flare-up around Iran, for example, still at loggerheads with the West over its nuclear ambitions, could boost the VLCC market, as the disruption to oil supplies would require ships to carry fuel further around the world.

Admittedly, there are differences in performance throughout the shipping industry, with the market for smaller "medium range" tankers, which carry refined oil products, holding up better than that for the super-sized crude carriers. But nor is the problem confined to VLCCs.

A similar oversupply of container vessels operating on the Asia to Europe trade lanes has pushed freight rates to "unsustainably low levels", operator Maersk Line warned earlier this year, as it announced it was taking 9pc of its capacity on the route out of service.