The unsustainable international maritime trade

I will sum up an article appeared November 21th in the Spanish newspaper El Pais called “International maritime trade sails at an unsustainable pace”. It is about the current crisis in the world maritime trade due to an imbalance between supply and demand

Why? While the volume of world maritime trade grew by 2.1% in 2015 (the lowest rate in recent years), the capacity of the world fleet grew by 3.5% over the same period. Shipping companies operate with larger ships to save without sufficient cargo being generated to fill them. This strategy was adopted in the middle of the last decade, with fuel prices peaking and a rapid expansion of international trade as a backdrop. The aim was to take advantage of economies of scale. But now China has gone from growing 10% per year in 2011 to the current 6.7% and its change in economic model has sunk global transportation. For despite the financial crisis and the Chinese slowdown, the major shipping companies decided to continue their strategy of increasing capacity – the average size of new ships has grown 132% in recent years – and decided to enter a price war for snatch customers from competitors and fill ships.

Container transport supply and demand

(Annual growth in% )

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What are the consequences?

It has caused price collapse and is driving the profitability of operations to the limit: fares for transporting a container from the Far East to South America, the Mediterranean and Northern Europe have fallen in the last five years 80%, 65% and 58%, respectively. With current prices, shipping companies can barely cover costs. Some companies have gone bankrupt and others are looking to merge to reduce costs. This concentration of the sector directs the industry towards an oligopoly.

The 10 largest shipping companies in the world

Variation between 2014 and 2015

                                                                       Income               Shipment capacity

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Written by: Cristina Aguilera

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