UK. Shippers' Voice says state subsidies represent slippery slope to further bad investments

Tuesday, 01 December 2009

 

Governments must resist giving state aid to shipping lines as this will never benefit shippers or global trade, says Andrew Trail, Managing Partner of www.shippersvoice.com

Shipping lines made bad decisions before and should not be helped by the taxpayer to make them again.

“The economic crisis came faster and more deeply than most had thought possible, but it does not change the fact that there were some poor decisions made without paying attention to market fundamentals,” Dr Traill says.

The Shippers’ Voice raised concern some two years ago over what seemed a mad rush to build bigger and bigger ships without actually consulting the customers as to whether they were wanted or needed or indeed practical, given the changing nature of supply chains and concerns over congestion

“The writing was on the wall even then, about over-capacity even with the high growth rates that many didn’t anticipate would change; and the US sub-prime market concerns were also building. If governments now decide to prop the sector up, what kind of message does that send out?”

Dr Traill cites the case of private ship owners in Germany seeking state aid to help them pay for new ships which are on order but no longer needed.

“It wasn’t that long ago that such people were making obscene amounts of money! It was the prospect of huge returns on investment that fed the frenzy of new ship orders, not a careful consideration of what the market needed.”

He says that if governments start handing out state aid to these ship owners it sends out completely the wrong message: “Don’t worry about making any bad or untimely investment decisions, because the state is here to bail you out so that you can make more bad decisions in the future.”

He admits that the same message has already been given to the banks, “but really I think it is time to draw a line in the sand and learn the lessons of the past extraordinary year and the business decisions of recent years which leading up to it.”

Dr Traill says the most ridiculous aspect of the whole saga is that despite everyone agreeing there are too many cargo ships at the moment, shippers seeking to move goods can’t get the capacity they need. “The shipping lines are trying to maintain rates by reducing the number of services and ships they make available on any individual trade route. So even if shippers can find the capacity they need – the rates they have to pay are artificially high.

Lines are also reacting to the higher fuel costs by reducing their speeds and increasing transit times. “Consumer demand is still incredibly difficult to predict; inventories have been cut to reduce costs and supply chains made leaner. Shippers need reliability and realistic rates in order to fulfil their customers’ demands – and to stay in business themselves. They cannot do this if services keep getting cut and chopped about without any real notice being given.”

Global trade volumes will, according to Shippers’ Voice partner MDS Transmodal, probably not recover to pre-recession levels until 2012 and will see a shift in the pattern of trade volumes away from the east to west routes and more towards west to east and intra-Asia.

Dr Traill says: “This will bring into question the type, number and size of ships required; and also their frequency, speed and ports of call: if we keep propping up the old system with state aid without forcing a fundamental change in practice and behaviour from the lines, what chance have we to meet the challenges of the next five or 10 years with the right business and investment decisions?”

Last Updated ( Tuesday, 01 December 2009 )