The Future of Shipping Industry
After almost a decade of prosperity, the glory days of global shipping industry is now finally over as the financial crisis in the United States continue to put more pressure across economies throughout the rest of the world (Chinese Industry Research Reports Networks 2008). Importation across countries continue to drop caused by depleting consumption of consumers as one of their means to ease their expenses. China, being the top trading partner of the United States, is currently experiencing surplus of industrial products like steel as the demand of United States and other countries on steel dropped significantly for the past few years.
In addition to this, the Chinese government ordered some of their exporters to postpone their deliveries due to the increasing economic uncertainty in the global market and tightening of credit facilities. Furthermore, aside from the US financial crisis, another factor that contribute to the worsening condition of the global shipping industry is the sky rocketing oil prices in the market which makes shipping more costly, thus, lowering the demand for shipping services and forcing companies to relocate their production sites closer to their big consumer market (Gambe 2008).
At the end of the day, the said decline in the volume of importation across countries fueled the drop of demand for global shipping services. It was identified that Panamax bulk market is currently struggling in keeping its timecharter rate to stable condition. Fetching rate of Panamax carriers dropped from 75,000 USD/day to 28,000 USD/day between June 2008 and October 2008. At present, Panamax carriers can hardly fetch a daily time charter rate of more than 12,000 USD/day. Also, Capesize bulk market has also been experiencing plunging timecharter rate.
The daily timecharter of Capesize bulk carrier as of June 2008 was as high as 150,000 USD/day, then plunged to 52,000 USD/day in September 2008, and then bottomed out to as low as 4,750 USD/day as of October 2008 (Gambe 2008). In fact, a lot of shipping companies have already declared bankruptcy due to the worsening financial condition caused by declining demand for global shipping services. The filing for bankruptcy of Industrial Carriers Inc, a Ukrainian dry bulk and tanker operator, can attest the intensity of the impact of US financial crisis on global shipping industry.
In order to have a bird’s eye view of the performance of global shipping industry, one can use the Baltic Dry Freight Index which measures the cost of moving goods/products by sea. Freight index is being considered by most market analysts and economists as a good tool in assessing economic activity since if there are not enough businessman or countries availing shipping services, there will be fewer demand for ships which in return causing a drop in the freight rates (Schulz 2008).
Last November 2008, the said indicator retreated for a sixth consecutive month caused by the slowing down of global economy and declining demand for imported commodities like iron ore and coal which are the main inputs in steel making. In addition to his, the said index fell by 18 points to 715 points, or 2. 5%. In addition to this, the Baltic Dry Freight Index has fallen to roughly 95% on May 2008 – the lowest record since January 1987 (Business Mirror 2008).
The officials of National Bureau of Statistics noted that the culprit of the said unstable performance of global shipping industry can be attributed to the perception of real economic slowdown. Based from the above stated facts and tools, it is clear that the future of global shipping industry is gloomy primarily caused by the global financial crisis which started in the United States. The decline in the consumption pattern, tightening credit, increasing oil prices and negative foreign advisories from other countries also contributed in the bust of the global shipping market.
If the state of global shipping industry remains unchanged in the next following years, then, it is expected that more shipping companies will file bankruptcy just like what happened to Industrial Carriers Inc. Bibliography Business Mirror, 2008, ‘Baltic Dry Index Drops for 6th Month’, Reading Online, retrieved 27 February 2009, <http://www. businessmirror. com. ph/index. php? option=com_content&view=article&id=2626:baltic-dry-index-drops-for-6th-month&catid=29:shipping&Itemid=66>
Chinese Industry Research Reports Networks, 2008, ‘The Shipping Industry is Facing a Good Opportunity to Adjust’, Reading Online, retrieved 27 February 2009, <http://www. cnreporte. com/shipping-industry-adjust. html> Gambe, R 2008, ‘Shipping has Collapse: Glory Days for Seafaring are Over as Industry Takes a Beating from the US Financial Crisis’, Reading Online, retrieved 27 February 2009, <http://www. ufs. ph/new/11120801NF>Sample Essay of RushEssay.com