The situation in the global global shipping market is out of control and close to collapse. The long state of crisis – approximately since the beginning of this year – brought an end to the incredibly successful two previous years. Having made huge profits during the Covid rush, when international trade picked up, the shipping business is now going through hard times.
As Goldman Sachs analysts write, the whole point is that demand for raw materials and consumer goods has decreased. Markets as a whole have fragmented and become regional. Delivery, as one of the most expensive services, greatly affects the final cost and profitability of the trader, so they try to avoid it.
Additionally, the industry is experiencing a surge in orders for new vessels, complicating efforts to effectively manage existing capacity. The shipyards accepted orders, believing that high demand for transportation and sky-high prices were here to stay, but everything changed too dramatically to stop the running processes. And now, against the backdrop of a recession, shipowners do not want to reduce freight costs even more than they fell, since they remember the excess profits of past years. These factors have brought the industry to a standstill.
Everything is so bad that Goldman experts even recommended selling the well-known company AP Moller-Maersk. For other lesser-known market participants, the prospects are even worse.
Global economic turmoil is looming as Western consumer demand weakens amid inflation concerns and central bank rate hikes.
Moreover, Goldman Sachs analyst Patrick Kroese said his fundamental view of the industry is that freight rates and earnings should continue to decline. This reduction is necessary until there is sufficient financial pressure to phase out high-value tonnage. There is no going back to the profitable past, the specialist emphasized.
In his opinion, the collapse of the industry or a “reset” will occur because the companies will not agree to the step described above and because of their greed, the entire sphere of maritime trade transportation will suffer. Although a compromise is just necessary, which, most likely, shipowners will not agree to.
2023-10-18 06:35:15
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