The evolution of the industry very well Explains why the world changed in final form and Will Be Difficult to return to a situation like we Had Before the crisis, and Allows us to UNDERSTAND why deflationary Pressures Will Be present.
To add Capacity in this industry, you Have to build ships (not assembled from night to morning). This is a gigantic investment Must Be made years in advance when to it is Perceived That the Growth in transportation demand warrants. Logically, Given the explosive Growth of international trade, shipping companies in the world Their investment accelerated by PROJECTING PLANS That the tenure continue. Today, They Are Overwhelmed Not Only Because of the Capacity That There Is Already idle, But Because They Are Also getting new boats, Which Were ordered years ago in the worst possible time.
The company AXS-Alphaliner estimated that about 1.1 million TEUs of capacity idle at this time, and which shall be 1.8 million more this year, which could lead to overcapacity will prevail until 2014, but the worst is expected this year and next, when the total capacity will grow 14% and 12% respectively.
Cosco, China’s maritime transportation, reported a loss of $ 490 million in the first quarter of 2009, having gained nearly 900 million in the same period a year earlier. It is estimated that the losses of the 20 largest companies would have exceeded 4 billion dollars in the quarter.
In such a situation, what do the companies that are saturated capacity? Try to use price discounting aggressively. Although the fees charged do not reach to cover operating costs, it is best to generate some flow to have stopped the boats (which also imply a cost) and not create anything.
Shipping companies will enter a competitive process to reduce prices, try to minimize their losses and survive, with the hope that their competitors are sinking (bad joke) first.
Logically, the lower cost of ocean freight rates marginally reduced the price of the goods transported. This lowering is likely to be reflected by the person who sells, at a time in which demand is probably declining. Probably the same applies to the storage costs, and even more relevant costs such as labor-wages, as more and more unemployed are willing to work for less pay, to re-earn an income.
That is why the world will be plunged into a deflationary process will not end soon and whose consequences are manifold.
