Rates have all but collapsed in some markets

Six months is a short time in the shipping world
From exhilarating highs in summer to nerve-jangling lows now, the world economic crisis batters the world's fleets ...

To the casual observer in the UK, it may not have been apparent. Our commercial shipbuilding industry all but gone, most of our great shipping companies now in the annals of history and with ports moved to locations usually out of the gaze of most Britons, one could be forgiven for not noticing that in fact the world has experienced in recent years an unprecedented growth in shipping and shipbuilding, fuelled by cheap imports from Asia and the seemingly inexorable rise of economies such as India and China and with that their lust for raw materials.

For some time charter rates went through the roof, and then some. Demand for new ships out-stripped supply leading to emerging shipbuilding nations like Vietnam and others that would have seemed fantastical to predict not so very long ago.

Suddenly, all that seems to be quite long ago too. A different picture is emerging. Companies are starting to struggle with too many ships chasing ever decreasing rates. Not only have some rationalised services such as the Europe-Asia Express, but others have gone to the wall. Britannia Bulk has went into administration only last week, reflecting the dual difficulties of servicing loan agreements whilst earnings plummet in a terrifying fashion. The Baltic Dry Index has seen falls in rates of up to 93 percent from the giddy highs of only May this year.

This slump not only means a fall in revenues but also less revenues to service debts. In turn, the current 'credit crunch' means extreme difficulties for struggling shipping companies seeking to raise capital.

It was not so long ago it seemed that rates could only go higher and higher. Orders for new ships have been placed that now look foolish and wanton. Predictions of growth look equally fatuous. Whilst at the moment the crisis has engulfed bulk carriers, it seems fair, and safe, to predict what happens here will happen at the other end of the production chain - i.e., the shipment of finished goods. Indeed it has already started to bite.

Container rates in the Asia-Europe routes have plummeted by around three quarters this year and a price war between companies seems to be driving rates lower and lower, destroying the profitability of container shipping and placing huge stresses on companies struggling to meet their commitments.

Reports are already filtering through of companies seeking sheltered waters to lay up their giant vessels to weather the financial storm. Just as in the days of the VLCC cull following the oil crisis in the 1970's, we could see the same happening with the great lumbering bulkers and container vessels, which will now seem less attractive as they ply the waters with their great bellies less than full. Mitsui O.S.K. Lines, Japan's largest bulk shipping company are said to be considering laying-up and even scrapping vessels as revenues collapse.

Last week Bloomberg carried an item where shipbrokers Lorentzen & Stemoco A/S reported that at least 20 percent of Capesize bulkers were lying idle whilst Asian sources are saying that dozens of container vessels are waiting in ports totally empty. Some sources liken the credit crunch to a Tsunami that is engulfing the shipping world.

So in the space of less than half a year we have seen the shipping world ride the crest of a wave and then plunge into a financial storm that could sweep vessels off our oceans, and with them, companies who cannot weather the crisis.

All eyes will be on the progress of nations seeking to inject liquidity into the markets. The question is, has this come quickly enough and will it be enough to stop what appears to be the beginning of the end of the good times in shipping and shipbuilding for some time to come.

Or will another six months see yet another, but this time, welcome reversal of fortune?