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Chick-News.com Poultry Industry News, Comments and more by Simon M. Shane

Prospects for Ship Operators Improving Despite COVID

10/21/2020

It is axiomatic that without an efficient and reliable ocean freight system, the U.S. would not be able to export agricultural commodities, eggs and meat products to markets in Asia and the EU.  Given fluctuations in the world economy and two to three-year lag periods between placing orders for vessels and their delivery, ship owners are reliant on forecasting long-term demand.  Frequently as a result of imperfect forward projects, expansion is not matched by demand. 

 

According to an article in the October 10th edition of  The Economist, the world fleet doubled  in 2010 but demand grew at only half that rate.  Excess capacity resulted in severe losses between 2012 and 2016.  This resulted in consolidation with 75 percent of the global fleet now controlled by seven consortia of which three are essentially owned by the governments of China, South Korea, and Taiwan respectively.  Currently only three percent of the world’s fleet is idled and shipping rates are soaring.  The Baltic Dry Index stood at 1,860 in mid-October 2019 and then fell to 750 in April partly as a result of COVID. As an indication of improvement in control or adjustment to the reality of the pandemic the Index is now close to 1,500.  It is estimated that the cost of moving a container from China to the Pacific Coast of the U.S. has risen by 127 percent over the last 12 months.  The quantity of trans-Pacific shipping is attributed to the sharp increase in exports of soybeans and corn to China and other Asian nations together with the ongoing negative balance of trade, confirming movement of goods from China to the U.S.  China is however still importing energy as oil, LPG and coal in addition to iron ore.

 

The emergence of COVID concurrently with the trade war between the U.S. and China has altered patterns of shipping.  Cambodia, Vietnam, and Malaysia have become manufacturing centers, partly displacing China as a source of goods.  This has created an opportunity for smaller vessels transporting goods from harbors directly to the EU or to transhipment hubs.

 

While commodity prices are influenced by demand for animal protein, nations exporting commodities including Brazil, the U.S., and Argentina are dependent on moving product to importing nations using large bulk carriers.  This presumes a profitable and efficient ocean fleet.


 
Copyright © 2020 Simon M. Shane