World's Largest Container-Shipper Warns Global Trade Is Slowing Down

Tyler Durden's picture

While it will hardly come as a surprise to many, especially those who have followed the historic collapse of the Baltic Dry index to levels which, all else equal, signify a global depression of epic proportions...


... and which led South Korea’s Hyundai Heavy Industries, the world’s largest shipbuilder, to report a $3 billion loss in 2014, the recent comments of the CEO of the world's largest container-shipping group, Maersk Line, should put things into perspective, especially for those who say that the Baltic Dry is no longer indicative of anything but massively dry-bulk ship overbuilding and excess supply (some 8 years after the past cyclical peak).

Unfortunately, as Søren Skou, Maerk's CEO, admitted when he warned that global trade growth could slow this year from recent 4% growth ratnes, as Chinese, Brazilian and Russian economies disappoint, the Baltic Dry is still not only relevant and accurate but telling the real story of global growth, or lack thereof.

As the FT reports, container demand rose by about 4% in both 2013 and 2014 and Maersk Line, the Danish group that ships about 15% of the world’s seaborne freight, expects it to increase 3 to 5% this year. Actually make it 3%. Or lower. 

“I’m personally more towards the low end of that,” Søren Skou, Maersk Line’s chief executive, told the Financial Times. “Growth from a historical perspective is quite sluggish. It has a huge impact for us as an industry.”

Furthermore, in the ongoing debate whether the collapse in crude prices is due to excess supply or a global contraction, this is what the world's biggest shipper thinks: Mr Skou called the halving of oil prices in the past year “a net positive for container growth” but nonetheless said the opposing forces were potentially greater.

In other words, yes supply isn't helping, but it is the lack of global demand that is pushing equilibrium levels lower, aka global deflation.

“The economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great,” he added.

Well, yes, because as even economists finally figured out, it is once again snowing in the winter.

Back to the Maersk CEO whose comments are seen as a good indicator of global trade as it carries goods and products between Asia, Europe, the US, Africa and Latin America: we learn that following what was supposedly the "hottest year on record" it snowed pretty much everywhere too, and what we, and Goldman, both said about the world being in contraction now is validated when looking at trade volumes:

He said that it was always hard to interpret the first quarter because of the Chinese new year but added: “To my mind volumes were sluggish. There is nothing in container volume numbers that suggest that the global economy is just on the verge of starting a new growth trend.”

Why is 4% growth (and certainly lower) important? Because just like 7% is roughly the growth number that China needs to hit every year to avoid social "disturbance", anything below this and suddenly you are talking mass corporate bankrutpcies due to oversupply, and a race to the pricing bottom by companies all of which are massively levered (in fact, as we have shown on numerous occasions, corporate leverage is the highest in history once more):

"Before if you acquired too much capacity you could kind of work your way out of it. In a 4 per cent environment capacity decisions take on a different perspective if you get it wrong. The good old days aren’t coming back,” he added.

And yet the biggest paradox, or perhaps most logical outcome, of all this is that just as margins are about to be squeezed across the entire global supply chain, the healthier companies are now rushing to do what the oil driller are doing, and overproduce, in the process pushing prices even lower in hopes of putting marginal companies, and those which don't have access to cheap and easy funds, out of business. Call it the Amazon effect, only here one is dealing with net debt leverage of 3x, 4x or higher. To wit:

Despite the warning, Maersk is about to order new ships for the first time since 2011 when it bought 20 Triple Es, then the world’s largest vessels capable of transporting the equivalent of 18,000 20-foot containers.


Mr Skou said a decision would be made between April and June with the likelihood that more Triple Es would be ordered, possibly slightly modified to take up to 20,000 containers. Maersk has said it needs the new ships to help it maintain its market leadership up until the end of the decade.

So with global demand lower as a result of slowing trade, and with Maersk about to boost ship supply even more, the result will be an even more aggressive drop in cargo and haulage prices as the deflationary wave hits yet another industry, in the process forcing seaborne transportation to be the latest to succumb to deflation, which for the highly levered sector means even more defaults are imminent now that China no longer is pumping nearly $4 trilion in total new credit every year. 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
JoeySandwiches's picture

No fucking shit?  I thought things were great?  Obama said good times were here to stay.

Publicus's picture

The Chinese Russian railway is destroying the need for shipping.

johngaltfla's picture

My favorite part of this article:

Joseph A. LaVorgna

Man, his continuing part of the July 2008 statements on CNBS that "we are not in a recession" are still classic, IMHO.

Thirtyseven's picture

Lots of trends throughout history where commerce has shifted from land based routes to sea based ones and vice versa. 

That commerce is shifting to land based routes is indicative of how secure Central Asia has become.


tarabel's picture



The Chinese-Russian railway has been there since about 1903. Won't make any difference in world trade routes unless a war severs marine transport options. In which case, the only people that can use the railway are the Chinese and the Russians since a war that severs Chinese maritime trade routes means war with the USN, which also means war with the EU. Poof go all the Chinese markets that can be reached by land and poof go all the markets that can only be reached by sea. And poof goes China's mercantile empire. Which makes Chinese warlords a bunch of pooftas.

sun tzu's picture

Poof go US and EU electronics for several years. No more cars, planes, internet etc.

GoldSilverBitcoinBug's picture

And poof USA because China will crash USD well before a war in Chinese waters.

Poof a Golden Yuan and Ruble.

Bring it on !

IronForge's picture

To some extent.  Only btwn RUS/CHN to DEU for the most part.

The Rail Traffic will keep picking up.  There are plenty of places where Ships are needed.  Dockworkers'Strike isn't helping, though.

sun tzu's picture

We don't need no stinking container ships to send Facebook posts and Tweets. It's the new economy. 

flacon's picture

This *must* be good for American Stocks. BULLISH! BUY AAPL! 

pemdas's picture

One shipping container can hold like what, $3 Billion of iPhone 6's.

Skateboarder's picture

iHeard they're coming out with iPhone 7 next year. I wonder how many generations of iPhones there will be before it all breaks down.

edit: Looked it up: it's this year.

ah-ooog-ah's picture

I make it closer to $120 million worth.



NoPension's picture

Wait until they start building TEU prefab house modules in China, and start shipping them here.

Then we just need a good supply of Mexican truck drivers and ElSalvadoran crane operators. You know, to do jobs lazy,useless Mericans won't do.

And as a bonus, China can pony up the cash to build ports in Mexico, so we don't have to deal with the pesky unions.


Thirst Mutilator's picture

Maybe they need to revisit 'SLAVE TRADING'... Perhaps the Goldman boys could help them with that...

Government needs you to pay taxes's picture

Goldman bankster here, we've got some great slaving structured products; (1) mortgages; (2) student loans; (3) payday loans; (4) bail bonds; and (5) slave swaptions.  As the only licensed slave trader in North America, we make markets in every race, and we're running a 2:1 special on Central Americans.

Thirst Mutilator's picture

If I can use fractional reserve to lever up the paper value on that 100x... Then, package that instrument to sell to my other buddy here, who can thusly leverage it up 100x and sell it to someone's grandma MOMO...\



Hans... BUBBY!!!... I'M IN goddammit!!! I'm ya White Knight!

El Vaquero's picture

What's next?  Slave Backed Securities?  Slave Debt Obligations?

LawsofPhysics's picture

They already exist, it's called a student loan.

Thirst Mutilator's picture

Oh SNAP! [& I mean that 'literally', not 'figuratively']... lol

Nostradumbass's picture

This bodes well for moving your stuff to Hawaii and other overseas destinations - no?

Lower costs due to greater competition and recent lower oil prices...

GMadScientist's picture

Only if you're looking to purchase a recently bankrupt dry shipper and do a naval U-Haul. ;)

LawsofPhysics's picture

How long will the hull of one of those shippers last?


How about turing one into your own private island?


You are not very innovative for a scientist.

GMadScientist's picture

Too L. Ron Hubbard. And that's scientology.

defender's picture

Kind of depends on your personal veiw of asthetics.  For instance, google prefers barges:

but other companies have gone with cruise ships (likely gutted of everything fun):


Of course, like all good ideas, someone else already came up with it:


Cognitive Dissonance's picture

"More power Scotty. I need moar power."

"I'm giving you all she's got Captain. She's breaking up, she's breaki........."

"It's during times like this when I wish the fiat volume scale of 1-10 goes up to 999,999,999,999,999" - Yellen, brain storming during a pot smoking session at the Fed.

" does."

Katastrofenhausse's picture

Not to worry, we'll be at war again soon and these ships can get busy sending thousands of pallets of Fed Reserve Notes over to whatever country we bomb the shit out of. Bankster logic: If one broken window is good, a whole country full of bombed houses is Teh Awesome

Chuck Knoblauch's picture

Haven't seen it yet at Walmart?

All shelves are stocked with all sorts of crap.

So, where is all the crap coming from?

Or, maybe no one is buying the crap already in the store?

Ships full of crap no one needs.

AbbeBrel's picture

But wait wait - China hasn't yet devalued the Yuan - to do their part in the great Currency War!!

All that crap will be 50% off next year. Better wait to buy when all is on sale and join the Club of the Disinflationaries...

MsCreant's picture

Any thoughts on how long the deflation stage will go on? What events would signal the rock bottom?

Cash, gold and silver, that is all I can think to do (besides being out of debt and having some preps in place, some home repairs done).

El Vaquero's picture

It goes on until either the Fed fires up the nuclear powered presses or until low prices lead to physical supply shortages.  The former would be in response to some financial crisis that hits and the latter, well, when you see companies start dropping like flies, you'll know we're somewhere near the bottom.  How much is that <insert store bought good here> worth to you if it is unavaliable? 

disabledvet's picture

Long NASA.


"Six hours in a space suit." Start doing the math.


At 50,000 miles per hour that would be...

LawsofPhysics's picture

It goes on until essential supplies can no longer be delivered and people start starving en mass.  History is very clear on this point.  Could be a while.  You will know when we are close when governments really start pushing for laws against any technology or actions that would make you self-sufficient.

Could be as simply as havng a fucking rain bucket.

disabledvet's picture

Greenhouses in Space.


Drop the food in Siberia or the Pacific Ocean for distribution.

El Vaquero's picture

It's already illegal to catch rainwater on your own property in several states...


Fortunately, it is not illegal where I am, and I would flatly ignore any such law anyway. 

logicalman's picture

What better way of government control than forcing the populace to be dependent on government

El Vaquero's picture

More and more people are growing their own food.  I was out cleaning up the front yard a week ago, and the parents of a childhood friend drove by.  I haven't seen him in probably 5 years, and his parents said that he was setting up a garden for his girlfriend, and that his sister had 10 acres and grew all of her own produce.  5 years ago, that was not something that they would have been into.  His parents said that they even save their own seeds.  A lot of people cannot say what is wrong, but they smell the bullshit in the air and know that something isn't right.  My neighbor across the street and both of my next door neighbors grow a lot of their own food too.   


This isn't big enough to feed everybody yet, but this does mean something very important:  The knowledge base is growing.  There are now enough people in my area who have gotten out there, grown things, failed, tried again and succeeded that we could probably go self sufficient on food in one season, given enough seed.  And people aren't using just one method, people are experimenting with different methods of growing stuff.  The one size fits all mentality only works if you have the industrial might to make one size fit all.  How does one grow enough food for his family when he doesn't have access to tractors, NPK fertilizer, GMOs that withstand roundup and pestacides?  If supply chains break, that knowledge will be very handy indeed.


The local politicians are even relaxing some of the regulations for small, local farmers.  If there is a crackdown on this, it will come from the feds.

MisterMousePotato's picture

It already has. A law was passed about five? six? years ago to make sure that no one gets unsafe food by making it illegal to grow anything and sell or give it to anyone else without government approval. Anyone here a little better educated than me on the subject?

BeansMcGreens's picture

Its called GAP (Good Agricultural Practices) brought to you by the ex-congressman Waxman from California. USDA people can close down your farm even if it is GAP approved, as an example was the cantaloupe grower with the listeria problem a couple of years ago. Very costly to get approved, and opens one up to surprise visits that the grower has to pay for by the hour. A dog pooping in a field can shut one down.

samsara's picture


LawsOfPhyics anser is most correct.

But to me it's like doing a cannonball into the pool.  The water goes down with you(deflation), then all of a sudden it changes and burst of water goes straight up(inflation).    The water is still going down, but it's about to change  maybe starting 2015.75.   

I expect the heavy metals rising 2016-2020 time frame. As Armstrong says, "Gold measures you trust in the government"  I see IRAs, Pensions, etc to get converted to Tbills for instance in that time frame.

spinone's picture

Sorry, but Martin Armstong 2015.75 prognostications don't hold water.

El Vaquero's picture

We'll find out in 6 or so months whether he is correct.  I think that something is going to pop in the next 6 to 24 months. 

samsara's picture

I see it as a momentum change date, Nothing particular needs to happen on that date.


spinone's picture

Deflation goes on until the unpayable debt is defaulted on.  Only then will aggregate demand justify an increase in supply, which in turn will create a virtuous cycle int he economy.  Until then we are just caught in the currents at the bottom of the pool, struggling just to stay out of the drain.

didthatreallyhappen's picture

so, how does it start (start to end)...  stores are busy with buyers (even if they are renters now instead of homeowners).

should I look outside my window for a cataclysmic event?

GMadScientist's picture

Would you like a new credit card?

ZippyBananaPants's picture

Maybe our leader could take a long boat ride on one of the conainer ships!  I saw an episode of Hawaii Five-O where the bad guy was shipped off in a container, never to be heard from again!