What They Say
Bloomberg Opinion (no fee) has an interesting interview with a shipping specialist that summarised the problems in shipping at the moment. Some nuggets from the talk:
- After years of over-investment and excess capacity, the market is now suffering from under investment, and like building LCD fabs, it takes three years or so to build a container ship
- The shipping business has such tight margins and is completely commoditised. When there is undersupply of shipping, the whole system starts to fail.
- To avoid delays at ports in the US and Europe, shippers are reluctant to wait around to be loaded with empty containers to take back to China which is causing shortages of containers in China
- It currently costs up to 8X more to ship from Shanghai to Rotterdam than to go the other way
- Building bigger ships doesn’t make sense as ports would have to be re-built, shipping channels deepened and new ways to use the cranes on ships.
- You can’t stack more containers on ships as they are designed to support stacks of 10-12
- Even Just-in-Time pioneers such as Toyota have increased their working inventories a lot over the last decade
- Although there is a heavily subsidised Trans-Siberian rail route, it’s annual capacity is only around one of the largest container ships – certainly less than two
- Prices for Shanghai to Rotterdam have changed from $10 per tonne in 2016, to $11,000 per tonne at the moment! Breakeven for the shippers is around $65 per tonne.
What We Think
If you are struggling with shipping issues, this might be a useful listen (around 25 minutes) (BR)
