Why is the container-shipping industry in a downturn?

Investments in container-shipping, oil production and drilling—sectors suffering severe, concurrent downturns—are no longer the safe bets they once seemed.

The Economist Espresso: Diversifying: American conglomerates


This seems to be driven, in large part, by the recent economic downturn in China, which is both a major source and a major destination for trade in goods.

A Bloomberg report has this to say:

Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom. Now they’re among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8 percent in 2015, while its imports tumbled 13.2 percent.

Moreover, there seems to be an overcapcity in the shipping industry thanks to the fact that shipbuilders ordered many new fuel-efficient ships in a bet that oil prices would remain high. From the same article:

Just a few years ago, as the global economy improved and oil prices rose, many companies ordered more fuel-efficient ships. There were more than 1,200 orders for bulk carriers that transport iron ore, coal, and grain in 2013, compared with just 250 last year, according to Clarksons. Many of the ships ordered are now in operation, says Tim Huxley, chief executive officer of Wah Kwong Maritime Transport Holdings, a Hong Kong-based owner of bulk carriers and tankers. “You have a massive oversupply,” he says.

Any standard economic model is going to predict that an oversupply of ships implies a reduction in the price of shipping, which hits the profits of shipping companies.

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