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Shipping News - and a bit more

Bruce Krasting's picture





 

 

 

I spoke with a fellow who owns vessels and happens to be be Greek. Some of the business and social/economic threads of our conversation:

He discussed (with some obvious anger) a poor investment he had made two years ago. He purchased a ship for $6Mn. This was a 28 year old vessel (that still had some life) that fell into the (aptly named) category of "Handy Sized" vessels. In the good times (2000-2005), this ship might have gotten charters that earned $15,000 a day versus fixed costs of $8-10K. At that rate the cost of the vessel would be returned in about four years (includes down time and deadheading). Not a bad deal.

It didn't work out. Cargoes for this vessel now pay a rate that no longer cover fixed costs. Layup times between cargoes has increased. Insurance companies charge more to cover shipments in older vessels; so this ship is shunned for newer ones. The final straw is that the ship needed repairs. A layup of three months, and another $1mn down a rat hole was necessary.

He cut his loss. The ship went from Singapore to India on its final voyage. There, it was run aground and chipped into pieces for scrap steel. In a month or two the ship will be converted to re-bar.

If you put this ship on a scale (empty) it would weigh 6,500 tonnes. All of this (nearly) is steel. The going rate for scrap steel is $425 a tonne; so he got $2.8Mn back on his original investment.

 

I bring this up as an example of how excess capacity is being worked off in commercial shipping. The story he told is being repeated daily. His loss on this ship is part of the healing process.

The good news is that freight rates are up a bit, and longer-term contracts are being written for vessels that are under twelve years old.

The bad news is that he doesn't expect the recent improvement to last. There are more and more ships coming to market, and there are not enough cargoes to fill them all up. He reckons another down tick by June of next year.

He discussed China's role in the shipping industry. It is the stated goal of the Chinese government to own 70% of the vessels that carry Chinese imports/exports. Today, that number is closer to 20%. This implies a huge transition in the ownership structure of the global shipping industry. It means that China, at one point, will have tremendous pricing power over global shipping costs.

China has purchased some vessels in the secondary market to achieve its goals, but the country's strategy is to build its own vessels. This will keep the steel mills and shipyards humming. It supports dozens of other industries that provide components. Financing is available from the banks. Insurance is provided by Chinese companies that favors the Chinese vessels. Chinese crews (non-union) are much cheaper than crews from Greece.

He said that this was playing out in slow motion. It will be another decade before the Chinese economic hegemony in shipping is really felt. He also said that the trend toward Chinese dominance was irreversible, and that there would be casualties. Think of a steady stream of rusty old ships headed for the scrap-yards of India. Each one means China gets stronger.

Note: The USA is not a factor in global shipping. US flagged dry cargo ships exist because they primarily carry A.I.D. cargoes of grain. Without this subsidy, the country would have next to no fleet at all.

 

++

 

We talked about Greece. The country is grinding to a halt. He described the situation in rural areas that have been very hard hit. The social infrastructure is falling apart. The young people are leaving the islands looking for work. The old people are left. There is no money to pay bills.

Greeks with ties to these communities, who now live outside of the country, are aware of the hardships. They have been providing a steady stream of assistance. A family from London will pay the heating bill for the old age home. Another, from NY, will see that the soup kitchens have food to prepare and serve. Someone in Australia will pay to keep the clinic going. Without this uncoordinated support system, people would be cold, sick and hungry.

He reminded me that the Greek people are very proud. They will accept assistance, but they will not beg. Relying on ex-Greek nationals for essentials is not sustainable. But there is no alternative in sight. Not a pretty picture at all.

 

 

 

 

 


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Mon, 10/22/2012 - 23:04 | Link to Comment cgagw
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Fri, 10/19/2012 - 10:26 | Link to Comment rsnoble
rsnoble's picture

God forbid if Greece slips into a recession as they fear in the news. LMAO.

DEATH TO THE ELITE.

Fri, 10/19/2012 - 10:01 | Link to Comment “Rebellion to t...
“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

Currently, China appears to hold a position of strength.  My issue with China is what is its birth to death ratio?  Does the country foresee a positive or a negative birth rate for the Chinese nation 5, 10, 15, 20, 25 years out.  Merely wanting to control the lion's share of the shipping regarding their own import/exports makes sound economic sense.  When one moves the timeline just a bit down the road, one can perceive the demographics can not sustain the current government/peasant fueled economic juggernaut.

U.S. immigration policy, demographic changes, and positive birth ratios; working together with sound private industry and public policy, may very well put China back on its heels and the USA back in a position of manufacturer in very short order.

Fri, 10/19/2012 - 11:26 | Link to Comment Jim in MN
Jim in MN's picture

 

Not only are you correct, but demographics is the most exact of the social sciences.  It is already baked in.  It is math.

I wonder if China would be better off devolved into smaller countries in the future.  Perhaps in a confederation of sort.  You know...united states?

Fri, 10/19/2012 - 11:04 | Link to Comment Omen IV
Omen IV's picture

not a chance ! the USA  cant compete with China - they have the winning Philosophy that guides government policy which is based upon provisioning for the general welfare of its citizens - they have a  - Mercantilist World Policy  - wherein government and business are joined at the hip - the new version of communism

the USA goes into foreign lands with a gun - the chinese with plowshares - they are in Africa - in only ten years - with joint ventures of infrastructure projects that will enable them to control the raw materials and logistics  for decades to come - obviously they are doing that on integrated basis with shipping next to maintain the marginal cost of production

the USA is a kleptocracy that beggars the world and its own people in the pursuit of short term MIC / Rents monopoly profits for the few at the expense of the many - there will be NO jobs of any consequence in the USA within ten years

the biggest telecom equipment and systems company is chinese not american  - even in technology the USA is headed for the dustbin of history

 

Fri, 10/19/2012 - 15:52 | Link to Comment Shelby Moore III
Shelby Moore III's picture

China has a winning philosophy? There seems to be this widespread delusion that China is strong. Just read my other comments on this page as a rebuttal.

Fri, 10/19/2012 - 09:55 | Link to Comment Martel
Martel's picture

If China gets its motor humming again, they could do to the U.S. what Ronald Reagan did to the Soviet Union. China could up its military spending, start a large scale sci-fi weapons program. This would force the U.S. to spend exorbitant money to weapons programs. That brought down the USSR, that could bring down the U.S.

There is a solution for the U.S., though: don't regard China as your adversary. If you do, you're going to crash & burn. Probably not in the next 30 years, but eventually. Less military ambition would allow the U.S. to get its economic house in better order.

Fri, 10/19/2012 - 10:57 | Link to Comment TrulyStupid
TrulyStupid's picture

More paranoia...China is doing well precisely because they have stayed out of the arms race and watched as the other belligerent powers bankrupt themselves in useless military malinvestment. BTW, when do we get the peace dividend from the war on WMD or Saddam Hussein or terrorism or whatever the current term is?

Fri, 10/19/2012 - 15:55 | Link to Comment Shelby Moore III
Shelby Moore III's picture

I was going to upvote you, except that you wrote China is doing well. I can't agree with that assertion. The rest of your post is okay, except I think China's military expenditures as a percent of GDP are similar to the USA. I did not downvote you.

Fri, 10/19/2012 - 10:10 | Link to Comment GeezerGeek
GeezerGeek's picture

Yes, less military ambition would allow the U.S. to get its economic house in better order. It would help much more if the US could figure out how to avoid spending $1 trillion per year on welfare, 75% of which is at the federal level. http://www.washingtontimes.com/news/2012/oct/18/welfare-spending-jumps-3...

Indeed, there are many places government spending could be cut, sometimes severely. But then, politicians do have to get reelected, don't they?

Fri, 10/19/2012 - 15:59 | Link to Comment Shelby Moore III
Shelby Moore III's picture

False, the USA can not escape from its $100+ trillion in unfunded welfare state liabilities by cutting the military, which is the elephant in the room. Nevertheless, I would love to see them abolish most of the military. There is a gun under every blade of grass in the USA. We have enough "you can take my gun from my cold dead hand" types to defend ourselves against any invasion.

Fri, 10/19/2012 - 08:58 | Link to Comment sessinpo
sessinpo's picture

Actually in this thread I have to say positive things about Bruce Kastings post. In previous posts, he has taken certain positions in which I took the the opposite, and my scenario ended up being more correct. In this thread, as I read through the post, Kasting didn't take a position really, just posted conditions from a certain shipper. I am glad Bruce didn't take a position this time like many of the other contributors, because often they have been wrong and I stated why they would be wrong.

Now let's take the instance on China dominating the shipping industry with their strategic investments. From the article: "It is the stated goal of the Chinese government to own 70% of the vessels that carry Chinese imports/exports. Today, that number is closer to 20%." That may very well be true. The best way to debate a situation is to take the argument and logically follow it to it's conclusion. So what if China dominates the shipping industry if the global economy is declining and China suffers losses.

Just look at the example Bruce provided about the Greek shipper. From article: "It didn't work out. Cargoes for this vessel now pay a rate that no longer cover fixed costs."

 

So what is to say China won't experience the same market forces?

 

It is educational and eye opening when Bruce and others share real life stories that are happening. The key is to take it into context in a logical format.

 

Right now, I am seeing an abundance of look out for China, China this and China that. I saw the same thing decades ago with Japan and nothing they suggested turned out. China may be big, have a the largest population, and advancing quickly to compete. But they also face challenges just as great or greater. For example, having such a large population and a growing army only works great if you can sustain that population and military. When you can't, those two things become a problem for a centralized government.

Fri, 10/19/2012 - 10:04 | Link to Comment Smiddywesson
Smiddywesson's picture

Agreed.  If my powers of prediction were as advanced as most analysts seem to believe theirs are, I'd be out making money rather than prognosticating about China.  But let me take a stab at it.

I totally agree with your Japan analogy.  Who knows where China will be in the future?  My guess is their "Century of China" will go down the toilet with the economies of all their customers in the West.  They face overcapacity and competition from their neighbors.  They are also facing an aging population.  More importantly, their society is based on keeping hundreds of millions of people with different religious and ethnic backgrounds, most of whom hate each other, thinking that they are "Chinese" and that there is a slice of the pie for them in the future.  Good luck with that.  There has been reporting that the Chinese spend more money on quelling public unrest than they do on defense.  Does that sound promising? 

Finally, I seriously question the maturity of anyone who thinks we can make accurate predictions about China based on information provided by China.  We can't trust the data we receive about our own country, let alone theirs.  If we want accurate data, pay attention to the annecdotes.  Focus on the buildings toppling over, the high speed trains wrecking, the graft, the land being stolen, the displaced cities, the riots, the tainted food, and the drivers backing over children they hit so they don't have to pay for their hospital bills.  Is this a superpower candidate, a successor to greatness?  China is corrupt.  In its infancy, its people already share the cynicism of more developed nations, and unfortunately, they have every reason to feel so.  Without the dream, it's not going to happen.

Fri, 10/19/2012 - 11:26 | Link to Comment Jim in MN
Jim in MN's picture

As I have said here before, we'll only know China is broken when we see the smoke rising from the cities in the satellite photos.

 

The demographics have already broken the wrong way in China, and the one child policy will one day be understood as the monstrous moral and strategic error that it is. 

 

China will get 'bigger' but not 'stronger'.  It is more complicated than such cartoons.

Fri, 10/19/2012 - 16:00 | Link to Comment Shelby Moore III
Shelby Moore III's picture

Bravo!

Fri, 10/19/2012 - 08:29 | Link to Comment max2205
max2205's picture

Each day you get softer while each day Charlie gets stronger

Part deux

Fri, 10/19/2012 - 04:06 | Link to Comment onebir
onebir's picture

"Think of a steady stream of rusty old ships headed for the scrap-yards of India. Each one means China gets stronger."

1) What about the impact of this scrapping on steel & iron ore prices & the value of China's stockpiles?

2) If global trade & shipping rates don't recover as expected, this just makes China - already quite possibly the world's excess productive capacity bag-holder - the capacity bag-holder in yet another sector.

Fri, 10/19/2012 - 02:26 | Link to Comment Diogenes
Diogenes's picture

"He reminded me that the Greek people are very proud. They will accept assistance, but they will not beg."

Too proud to pull their weight and too proud to pay their bills. But not too proud to take a loan or a handout.

 

Fri, 10/19/2012 - 06:26 | Link to Comment Amagnonx
Amagnonx's picture

Handouts?  You mean extortion.

 

About pulling their weight - you really need some education on the subject.  The Greek members of govt were the ones making out like bandits - accepting bad deals from the likes of GS.  They were bought out, and dumped huge losses and debt onto the average Greek people.

 

Before you start pointing fingers - at least try and make sure you know who is at least partially guilty.  The greek people are as much victims as any other so called democratic nation in which politicians act against the interests of their people, and accept bribes and commissions.

 

If you accept the idea that the people of nations can be blamed for the actions of their govts, then the US people are terrorists and murderers.  I dont think its a case that can be made - govts like to pretend that they represent the people - and hide behind their flags while they loot, murder and destroy.

 

One can only hope the Greek people will rise up and other throw those who oppress them - and bring to trial those who are guilty of destroying their nation.

Fri, 10/19/2012 - 08:41 | Link to Comment TX-Mike
TX-Mike's picture

I am not singling Greece out when I call BULLSH!T on your repsponse Amagnox.  People get the gov't "leaders" they deserve when they vote (or don't vote in many cases).

Too many places the world over people are selfishly voting in people who make promises about all sorts of government money with no concern at all if it is fiscally prudent in the long term.  The people being voted into office know good well that they need to keep the government money flowing to the masses at all costs.  So that's what they did, and now the price is to be paid.  That money had to come from somewhere, either the printing press or loan sharks, pick your poison.

Countries like Greece, Spain, Italy, and now the US, are full speed selling their futures down the toilet through deficit spending.  People (companies and countries) who lend these "sovereigns" money are fools and deserve to see their "investments" go up in smoke.. poof!

The balance sheets and income statements for these countries have been poison for decades and it didn't take a nobel prize winning anything to figure it out.

As for US gov't murders, you won't get any argument from me!  If I was king of the US for a year I would pull back ALL of the US troops to US soil, stop ALL foreign aid, close the borders to new immigrants (until unemployment goes down down for CITIZENS), and kick the UN out of the US.  Let Europe host them for a while!  Oh and the best 4 administrations would be rolled out and examined for war crimes too.

Hope all you want that Greeks will over throw their leaders.  My $5 to your 10,000 Drachma says that they will vote in ones just about like them and start the same cycle all over again.  It's human nature, "Greek" or not.

 

Sun, 10/21/2012 - 16:39 | Link to Comment Amagnonx
Amagnonx's picture

The controllers hold all the cards - they control the media, and they can control the political selection process.  How can people vote in the 'right' people when they will never even know those people exist, and if they do - then the policies they represent will either be obscured or ridiculed by the media.

 

Its difficult for people to get tbhe truth when they are surrounded by liars.

Fri, 10/19/2012 - 12:17 | Link to Comment RallyRoundTheFamily
RallyRoundTheFamily's picture

Diebold

Fri, 10/19/2012 - 03:51 | Link to Comment Shelby Moore III
Shelby Moore III's picture

What is the market value of pride?

Fri, 10/19/2012 - 10:39 | Link to Comment kaiserhoff
kaiserhoff's picture

Apparently not enough to get the Greeks interested in work or paying taxes,

Not that I blame them in this global cluster-fuck.

(One of the many things I've learned from ZH is that I can't spell for shit,  Thank gawd for spell check)

Fri, 10/19/2012 - 03:45 | Link to Comment ebworthen
ebworthen's picture

Oh sheesh.

Fri, 10/19/2012 - 02:12 | Link to Comment q99x2
q99x2's picture

A few offerings to Zeus may not be a bad idea at this point.

Fri, 10/19/2012 - 03:36 | Link to Comment ebworthen
ebworthen's picture

Don't forget Poseidon.

Fri, 10/19/2012 - 11:09 | Link to Comment Orly
Orly's picture

Athena for me, thanks!

Oh, and Saint Jude, patron saint of losers.  I have a candle burning right now.

Fri, 10/19/2012 - 01:16 | Link to Comment baldski
baldski's picture

disabledvet: We have been shipping LNG out of Alaska to Japan for about 20 years via Nikiski and Phillips Oil. This Greek is a typical lame operation. Buy a ship 28 years old ? Give me a break! 20 years is stretching it. Would you buy a 28 year old truck and try to make money off of it without any M & R costs? What a loser!

Fri, 10/19/2012 - 01:10 | Link to Comment The Malamute Kid
The Malamute Kid's picture

Watch the Baltic Dry Index, as a barometer of the economy

Fri, 10/19/2012 - 01:08 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Of course the Greeks have a choice.  Dump the Euro, watch the tourists flood in in waves.

Fri, 10/19/2012 - 05:55 | Link to Comment falak pema
falak pema's picture

Witness the can kicking yesterday at EU meeting; where the famous, essential banking union has been set back ONE year in order to allow Merkel to get elected; w/O commitment in 2013 to bail out spanish banks directly by Germany; which means more pain in Spain and as for Greece there is NO grease on their plate from Germany, who will NOT let them pull the plug in true default mode as this wil create bank contagion and world wide collapse; yes tiny Greece could do that, if Spain follows in panic bank run mode.

As we all know the cancer is in those banks fed on steroids injected by City shills who have to be taxed from here to eternity; but that can wait two more years! Its called hopuim and can kicking dopium...

So the banksta cabal get respite for one more year (officially), and it may be too late by then if Spain implodes in 2013.

These EU politicians have their priorities right! But they will never allow pathetic cheating Greece to grease the wheel of financial banksta armageddon; you can bet your hat on that.

Greece stays poor and suffering, but will not leave the Euro if the Germans have anything to do with it! 

Heil Banksta cabalista dictat!

Fri, 10/19/2012 - 05:19 | Link to Comment Vigilante
Vigilante's picture

@ghostfacedinvestah

This will happen in the next 6 months...

After a winter of mass discontent.

The latest bout of austerity measures means that ALL Greeks now are in a pickle...

Example...You have yearly income of as little as 100 euros...

Normally you wouldn'r be taxed...now you get taxed for 28%.

There is no minimum threshold anymore....the minimum is zero!!!!!

If I was a greek I wouldn't worry...wait a sec..I am Greek...

Deliverance is near..mark my words

Kontos psalmos hallelujah, as they say in my neck of the woods.

Thu, 10/18/2012 - 23:57 | Link to Comment Heyoka Bianco
Heyoka Bianco's picture

If the Chinese build ships like they build every else, there's gonna be a whole lot of Chinese goods on the sea floor in the future.

Wed, 10/24/2012 - 17:33 | Link to Comment Winston Churchill
Winston Churchill's picture

Back in the 60' and 70's the western world said the exact same of

Japanese goods.They were then, justifiably, the butt of numerous jokes.

Who is laughing now ?

Fri, 10/19/2012 - 11:24 | Link to Comment Omen IV
Omen IV's picture

Hauwei Telecom - largest equipment supplier now in the world  - hardware and software - the chinese shipping strategy will stand the test of time  - the USA will not

communism > mercantilism > world dominance !

USA Vampire Capitalism > MIC / Rents > beggar the citizens with taxes and rents  > short term monopoly profits >  depression indefinitely

 

 

Fri, 10/19/2012 - 07:09 | Link to Comment Winston Churchill
Winston Churchill's picture

Japanese goods ,especially cars, were a total joke at one point also.

Now they are the premium brands,

The Chinese story is very young.

Fri, 10/19/2012 - 13:09 | Link to Comment Shelby Moore III
Shelby Moore III's picture

And Japan's debt-to-GDP ratio is the worst in the developed world. Mass production industry has rewarded them well?

When the global debt bubble implodes (probably when inflation gets too high) within a few years, we will see how mighty Japan isn't.

Meanwhile, we've moved on to software and Apple is now the highest market cap in the world. We give the leftovers to the Asians. They are obedient servants, who don't speak up against being crammed into tiny living spaces, bullet trains, and other ways to keep costs low and be a low profit margin mass producer. Granted Japan has moved up the food chain a bit and counts China as their servant.

Fri, 10/19/2012 - 01:29 | Link to Comment Middle_Finger_Market
Middle_Finger_Market's picture

Heyoka; agreed. Cannot get over how much China import yet the absolute shit they produce which last 5 minutes then ends up on a dump. What an absolute waste of precious resources. 

Fri, 10/19/2012 - 00:35 | Link to Comment Umh
Umh's picture

There is a concept of just good enough that seems to prevail in asia. I see it most in India, but it's really broad spread.

Fri, 10/19/2012 - 00:31 | Link to Comment Libertarian777
Libertarian777's picture

according to paul krugman that will be a net positive for Chinese GDP and their economy.

They will have to bulid twice as many ships, and twice as many goods.

Also if they build it by hand, as inefficiently as possible, unemployment will be 0% in china and they'll need to hire the '7.8%' unemployed americans.

Win-win for everyone!

Fri, 10/19/2012 - 11:58 | Link to Comment Shelby Moore III
Shelby Moore III's picture

 

<-- click here if you are an economic illiterate

Except inflation is the result of doing everything as inefficiently as possible and duplicating effort (include blowing up new buildings to build them again).

Thu, 10/18/2012 - 23:31 | Link to Comment Binko
Binko's picture

History is not going to look kindly on our dim-witted country for handing economic dominance of the globe to a ruthless command economy in return for short and medium term profits for the wealthy. 

We are like naive country bumpkins who want every nation to be our friend. We think if we play nice they will play nice. But the Chinese do not think like this. They will gather power and control until they can grind us into dust economically. 

The Romans had the excuse of an endless wave of barbarian invasions. The British Empire was decimated by two World Wars. What's our excuse? We have sold our future in return for a few extra billions for the 1% and a mountain of shiny baubles for the masses. 

Fri, 10/19/2012 - 01:20 | Link to Comment Shelby Moore III
Shelby Moore III's picture

Economic dominance? Nonsense. We outsourced the worthless shit to them, as long as they agreed to suppress their knowledge industry, and we kept the valuable knowledge industry:

http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html

We won again.

Fri, 10/19/2012 - 09:31 | Link to Comment ebear
ebear's picture

All your article demonstrates is that a little knowledge can be a dangerous thing.

Fri, 10/19/2012 - 11:15 | Link to Comment Shelby Moore III
Shelby Moore III's picture

My article has proved that your IQ is insufficient.

Or that you are simply ignoring the fact that economic failure is subsidizing very low or negative profit margins on the massive scale, proven by a consumption share of GDP that is on par with the Congo and other African basket cases.

I will get the last laugh on this fact. It won't take more than a few years for the tide to go out, and everyone will see how naked this policy has been for China as they implode.

There are fundamental laws of economics that can not be violated in spite of your ignorance of them.

Fri, 10/19/2012 - 16:37 | Link to Comment ebear
ebear's picture

"My article has proved that your IQ is insufficient."

I'd rather have a sense of humor than an IQ like yours.  What is it, anyway?  I just know you're dying to tell us.

Sun, 10/21/2012 - 15:28 | Link to Comment Shelby Moore III
Shelby Moore III's picture

I have a sense of humor:

https://groups.google.com/d/msg/scala-debate/vysv97J0xok/4cG9m7fU5mUJ

Denigrating my very serious article with some nonsense about "a little knowledge is dangerous" is not funny to me.

I put two long days into writing that and a culmination of years of research. If you have a factual retort, then I would like to see where my thesis is wrong.

It has nothing to do with ego, it is serious issue of what is wrong with our global economy and how we are going to get out of the morass.

Fri, 10/19/2012 - 02:33 | Link to Comment Diogenes
Diogenes's picture

If that is an example of the "valuable knowledge industry" the Chinese can have it.

Fri, 10/19/2012 - 03:44 | Link to Comment Shelby Moore III
Shelby Moore III's picture

What example? I did not provide any example of "valuable knowledge industry".

The knowledge industry is the most valuable activity in an economy. It is just common sense. Read my article, then you will understand:

http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html

The hard resource and manual labor is always a declining proportion of the value in the economy. The example in the fish story that I linked to should clear this in your mind:

http://home.earthlink.net/~schiffeconomics/03.htm

Do NOT follow this link or you will be banned from the site!