Yes, the price of oil is low; the freight rates have taken a dive and it costs money to operate a ship.

Where are you hearing or reading shipping companies are investing to improve operations?

Jeanette Isabelle

I'm employed in the training industry. Traditionally aimed at the fire, medical, police and emergency management sector. But we also doing industry and now are targeting the maritime industry. Maritime is apparently booming in investment, so the boss wants a piece of the pie. I’m not directly involved, but that’s what the maritime people at our place are saying.

As the links I provided indicate, this is a quick turn around as in weeks. How current is the information you are getting?

Jeanette Isabelle

There seems to be some confusion about what the Baltic Dry Index is, and what it means.

It is NOT a measure of how much stuff is being shipped. Rather it is a measure of the price of shipping stuff. Price, as always, is determined by supply and demand. "Supply" in this case is the number of ships available to move stuff. "Demand" is the amount of stuff people want to move. At present, the fleet of dry cargo ships is somewhat overbuilt (particularly by Chinese shipyards). And demand is somewhat down due to the slowing of the growth of the economy in China and other countries. A modest oversupply of ships coupled with a modest economic slowdown leads to a big drop in the index. Because ships are long term investments, it takes awhile before enough of the older ships in the world fleet are retired, so the supply side remains too big for a fairly long time, and hence the index stays low for a relatively long time.

Forbes has a nice article that explains this: Explaining The Baltic Dry Index Plunge: It's Supply, Not Demand.

It is always sensible to keep a good reserve of emergency food, water, fuel, and other essentials. If possible also keep a reasonable stock of useful though not vital goods such as liquor, tobacco, confectionery and non perishable consumer goods in general.

However in this particular case I suspect that ships are idling at sea because the goods that they carry are not much in demand. If fewer consumer goods are being sold, then retailers will delay replenishment and wholesale suppliers will be left with excess stock. Importers may then lack either the money, or the physical storage space to accept more imports.

With the present low shipping rates it may make economic sense for ships to wait at sea until either another buyer for the cargo can be found, or until the original buyer belatedly has the money or the warehouse space to take the goods.

Any disruption to world trade is concerning, but in this case I suspect over supply or a slow down in demand, rather than shortages.
Still a good idea to stock up though, just in case.

Well said.


In a page I linked earlier says:


http://www.afr.com/business/transport/sh...20160124-gmd2iu


http://www.telegraph.co.uk/finance/12108...ing-memory.html

Sixty percent of the cost of a new ship is owed to the banks for ships that may not be worth its weight in steel (if we factor in the cost to scrap the ships). Therefore, shipping companies have to operate at a loss just to contribute to the interest.

Low freight rates are not great for us if the system we depend on can't sustain its self.

Jeanette Isabelle

As the links I provided indicate, that is not the reason ships are anchored. To summarize, ships that are moving are operating at a loss just to contribute to the interest, not the capital, of said ships.

Jeanette Isabelle

Not sure why you are so worried? The weakest shipping companies will go bankrupt, and their assets will be sold. The oldest and least efficient ships will be sold for scrap. The newer and most desirable ships will be sold at a loss. The creditors will take a loss.

Meanwhile, the shipping companies with the strongest balance sheets will ride it out and survive. The strongest of them will pick up some of those discounted ships at a very good price, and use them to replace their older less efficient ships. When enough of the weaker companies go under, and enough of the older ships are scraped, the system will rebalance and rates will go up again. The surviving companies will be profitable again.

That's Econ 101. Welcome to life in the business world.

I see some of that happening some time in the future (I explained why we may not be seeing ships scrapped). What are we going to do in the meantime?

What it will mean for us when banks take a loss is only speculation at this time.

Jeanette Isabelle

We all have the essentials, but it's hard for me to figure out what to stock up in case of a global shipping slowdown. The only thing I can think of is electronics. But I'm just one person. How many iPhones do I need?