"Zombie Ships" - Why Global Shipping Is Even Worse Than The Baltic Dry Suggests

Tyler Durden's picture

One glance at The Baltic Dry Index's collapse is all that most need to see the painful state of the global shipping industry. However, as gCaptain reports, reality is even worse as the boom in so-called "zombie ships" suggests there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.

 

It looks bad...

 

And it's not just over-supply... (trade is slowing rapidly)...World trade volume rose by only 0.5% YoY in October and was up 2.4% YoY in the first 10 months of 2015, while world trade value in USdollar terms declined by 12.2% YoY in October and was down 11.8% YoY in the first 10 months of 2015.

 

But, as gCaptain details, reality is even worse for the world's shipping industry...

Analysts agree there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.

 

However, unlike that bleak period for shipping, which ultimately resulted in a strong recovery for charter rates, this time the fundamentals are quite different.

 

Overcapacity, stemming from the ordering strategy of carriers has been exacerbated by a growth slowdown in China and ultra-low oil prices. And according to the latest report from Alphaliner, with the possible exception of very small feeders, all containership sectors are struggling badly, with owners obliged to accept sub-economic charter rates and pay for positioning costs just to keep their ships busy.

 

The revenue earned in charter hire is seen by owners as a “contribution” to vessel overheads, but is often insufficient to cover mortgage payments on the ship.

 

Thus “zombie ships”, as they have become known in shipbroking circles, are masking the perilous state of container shipping.

 

Commentators generally point to laid-up tonnage and ship deletions as health barometers of the industry, but in the past year, these have proved to be less than reliable as indicators. Despite chronic overcapacity and weak demand the number of laid-up containerships has only inched up relatively, with Alphaliner’s idle tonnage register at 11 January reflecting a net increase of just six ships in the previous two weeks.

 

In fact, the total number of idled ships, 337 (1.35m teu), represents only 6.8% of the world’s cellular fleet; a figure that is clearly artificially low given current industry fundamentals.

 

While some smaller ships were added to the laid-up fleet during the period, Alphaliner notes that several ships of 7,500 teu and above were returned to service ahead of the Chinese New Year holiday, albeit that after the peak pre-CNY weeks these ships are again likely to become surplus to carrier requirements.

 

The demand for 7,500-9,500 teu ships is “next to zero”, said Alphaliner, adding that there are still 12 vessels of 7,800-8,800 teu seeking employment in Asia.

*  *  *

As we noted previously, given these trends, the crummy performance of our heavily internationalized revenue-challenged corporate heroes is starting to make sense: it’s tough out there.

And further, as the baltic dry index continues to plumb new record lows, how long until central banks realize that for all their omnipotence and all their attempts to restore growth, inflation and the "wealth effect" they never mastered the only thing worth printing in a globalized world: printing trade?

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hedgeless_horseman's picture

 

 

Analysts agree there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.

Since this article appears to be about container ships, let's look at the Harpex, instead of the Baltic Dry...

http://www.harperpetersen.com/harpex/harpexVP.do

Winston Churchill's picture

Like we have entered a destocking cycle that will make 2008 look very tame.

ZIRP just delayed it a couple of years, but couldn't stop it.

The only thing the economy will be producing this year will be pink slips.

RaceToTheBottom's picture

Who took my deck chair?  It was nice, right by the musicians and everything.

OpenThePodBayDoorHAL's picture

better grab one from that fat guy over there, you'll be needing something bouyant

jerry_theking_lawler's picture

Business school basics....if you can cover your variable costs, do not shut down...or in this case, don't lay the ships up and take a total loss. They will keep sailing until they sink.

 

That may actually be a good business venture...sinking ships. Kinda like burning properties after the housing bust.

Theosebes Goodfellow's picture

~"better grab one from that fat guy over there, you'll be needing something bouyant"~

Screw that, grab the fat guy. He is buoyant!

MSimon's picture

All is Lost

 

The Second Law Of Thermodynamics.

TheDanimal's picture

Lol ZIRP made it worse by delaying it.  If you don't laugh, you'll cry.

lasvegaspersona's picture

...because the bottom of the screen doesn't allow us to view the current status...

To see where we are today I'd have to take the elevator down to 6.

38BWD22's picture

 

 

I should have some data points (anecdotal of course) once Peru gets back to me re Osaka - Callao, Busan - Callao and Shanghai - Callao LTC rates.  They are down, but I don't know how much.

Of interest to some is how the strong dollar is hurting small importers in the developing world.  Pay with strong dollars, receive in weak local currency.  The strong dollar is not giving (us anyway) any lower prices from China, Korea or Japan.

Uchtdorf's picture

I've glossed over your comments for a few months, but the Peruvian reference in your post above and the obvious clue in the avatar finally made me realize who you are. I'm glad you're here and commenting. Stay safe.

38BWD22's picture

 

 

Thank you.  You stay safe too.

Everybody, stay safe!

TheDanimal's picture

Everybody, stay safe!

That's not what Grandma Yellen says...

38BWD22's picture

 

 

I thought it was Uncle Janet...

NoDebt's picture

His screen name used to be 'Timken 510062'.  

;)

38BWD22's picture

 

 

Timken is too expensive...

MBS!  KBC!  Iljin!

General Decline's picture

Perhaps so but are Timken better quality? Cheaper is not always better that goes especially for bearings. I don't know - That's why I'm asking.

38BWD22's picture

 

 

That's a complicated question.  For TRBs, a quiet comparative study was rumored to have been done by SKF at a lab in The Netherlands.  Whose TRB lasted the longest?  RUMOR has it NSK (Japan).

But, longer lasting is a fuzzy and complicated matter.  In Peru, "reasonable quality" at a cheap price is what works.  Timken is just way too expensive as automotive replacement parts.

Timken is very welcome in the mines (etc.) where a big bearing going bad could cost them $50,000 per day.

A_DAB_will_do's picture

Once upon a time I worked for an electric motor manufacturer.  We did an internal study on roller bearings; perhaps not as rigorous or long term as an independent lab test.  But the point was that SKF, NSK, and a few Chinese companies like GBC all made solid products.  And then there were the rest of them....

I had the opportunity to visit Ningbo, China; which I believe must be the bearing manufacturing capital of the universe, to see some of our supplier's operations first hand.  I'm still stunned that there can be that many companies dedicated to making bearings in one place...

Wild Theories's picture

there is actually a lot of synergy from that sort of concentration, not the least of which is competitive/skilled labor and established competitive supplier chains

 

downside is of course, excacerbated pains during sector downturns

The Navigator's picture

The Baltic Dry Index covers bulk ships (except oil/gas) that carry raw materials and grains (iron ore, wheat etc) - items used by manufacturers to produce finished goods.

The Harpex covers containers ships which carry finished goods heading to importers-distributors-stores-consumers.

The BDYI should be the leading indicator but both indexes have crashed - overcapacity and greatly declining demand.

But at least we have war to keep some jobs going.

Winston Churchill's picture

With any luck sinking any overcapacity at the same time.

War by this summer seems very likely.

We live in interesting times, we may also die in them.

jcdenton's picture

Iron ore, even wheat ..

 

Quite plentiful in Skyrim .. (of course, you have to look for it)

And the interesting thing about the Dwemer; they're all gone, but their machines still work ..

A_DAB_will_do's picture

If we're unlucky war might solve our problems with an excess of container ships.  Think back to WWII and the German U-boat wolfpacks affect on shipping.

Imagine one rogue nation, like North Korea, taking their submarine(s) and attacking shipping in a major shipping lane.  They or the Iranians, or the Russians, could do a great deal of damage in a very short period of time...

Casey Jones's picture

Related to all this container ship business, who is building massive warehouses all around the southwest to California? These fucking tilt up monstrosities show up from one week to the next it seems. I can't fathom any real economic activity that will ever utilize these things. Makes me think in the future there will be a business in repurposing these grim structures into something else. Maybe roller rinks will make a comeback.

KesselRunin12Parsecs's picture

How many 'immigrants' could be stuffed into one of those things?

moonmac's picture

Open our boarders and we'll find out in 4 weeks...

Iam_Silverman's picture

"Open our boarders and we'll find out in 4 weeks..."

Why should we vivisect our overnight guests?  Do they eat illegal immigrants that cross our borders?

Sparkey's picture

That is a micro aggression, I feel afraid!

BuddyEffed's picture

How many lawyers could be stuffed into one of them and the sent to sea and scuttled.?

And do you know what they call a ship full of lawyers scuttled at sea?

They call it a good start.

ExpendableOne's picture

Seasoned with a few politicians, bankers, lobbyists and misc. government types.

tmosley's picture

Depends on whether you put them through a woodchipper first or not.

TruthHunter's picture

Render them into Bunker Crude?

How far could a ship go on parasites out of DC?

Onan_the_Barbarian's picture

Make sure to poke a few holes in it.  For the air to get out.

Wild Theories's picture

optimal numbers will differ depending on whether you want your "immigrants" to arrive alive, dead, or barely alive and how long the trip will be

gonetogalt's picture

I beg to differ...

how long until central banks realize that for all their omnipotence and all their attempts to restore growth, inflation and the "wealth effect" they never mastered the only thing worth printing in a globalized world: printing trade? 

Print some gold Bitchez..

KnuckleDragger-X's picture

Follow history back to the ancient Greek city-state and you'll find the same insanity all the way forward, and we're just doing it again because" it's different this time"......

Chuckster's picture

This is the best possible time to purchase calls on  TZA. 

khnum's picture

Todays economy runs on app downloads,unicorn poo and cat videos money is created through a keyboard,shipping is the old 20th century economy model when currencies took into account the value of labour participation value added etc which has been superceeded

Consuelo's picture

 

 

Monetizing oneself via youtube...    The founding industrialists surely would be proud, no...?

LawsofPhysics's picture

So, is "waterworld" on or not?

besnook's picture

the bigger picture taken from these charts is the precipitous drop in dollar denominated trade. someone tell me why the dollar is so strong, again?

Iam_Silverman's picture

"someone tell me why the dollar is so strong, again?"

It's the cleanest dirty shirt?

RaceToTheBottom's picture

Boy, that clean, dirty shirt really reeks.

 

Wild Theories's picture

the dollar isn't strong, it's that many currencies and economies are faltering

normally they'd be all be losing in value against something like gold, but since USD has replaced the position traditionally held by gold, in that capacity the USD becomes the one seeming strong