Global Shipping Industry Struggling

The global shipping industry is in dire straits with international rates low for five years, and for some vessels, the current day rates are covering less than 5% of costs.

South Korea’s Hanjin shipping company collapsed in September, owing $8 billion in debt. It left 97 ships stranded around the world unable to pay for fuel or other fees, with $14 billion worth of goods stuck on board, ABC reported.

“These ships cost the shipowner about $18,000 a day to put to sea, some of them have been accepting day rates of $750 a day. They are losing money hand over fist,” said Teresa Lloyd, chief executive of Maritime Industry Australia.

“This has been the longest and most sustained downturn in rates that any part of the industry has ever seen, it’s absolutely dire at the moment.”

In Australia, the Hanjin California was seized for a month in Sydney and the Hanjin Milano was stranded outside the Port of Melbourne. Woolworths, Big W, Masters and Pacific Brands all had goods tied up on those ships.

With the stranded ships finally unloaded, attention has turned to selling the shipping company’s assets.

“They’ve sold in the order of $40 million which is a very small part of overall debt of $8 billion,” said shipping lawyer Ernie van Buuren, who represents a number of Australian businesses owed money by Hanjin.

“They’re small amounts in terms of service providers like tug operators, pilots in Australia, to larger amounts running in to the millions of dollars,” he said, adding that his clients are unlikely to see any of that money.

There will be few buyers for Hanjin’s ships as the global market is already oversupplied. Shipowners ordered new ships a decade ago when the market was strong, and they are still being delivered today.

At the same time there is less demand as the export of goods has declined, particularly as China’s booming economy slows down.

 Hollowing Out

Globally, shipping is an industry in consolidation. In response to Hanjin’s collapse, Japan’s three biggest shippers, K line, MOL and NYK will merge their container businesses, and other smaller companies are likely to be swallowed up.

“The top 10 are really going to control about 77 to 80% of world container fleet,” said van Buuren.

Australia’s shipping industry is hollowing out as companies move their headquarters to Asia, where tax breaks and cheap labor are offered.

“There’s been at least half a dozen moves to Singapore, move their headquarters, offices, take their strategic decisions. Singapore has done that very successfully, there’s an economic cluster for Singapore,” said Lloyd.

That has left Australian businesses that supply the shipping companies struggling and millions of dollars of business going offshore.