"Taiwan Approves $1.9 Billion Aid Package to Troubled Shipping Companies" – Wall Street Journal, November 16, 2016
"3 Japanese Shipping Companies to Merge Container Businesses" – New York Times, December 30, 2016
"Container ship demolition hits record high" – JOC.com, November 7, 2016
"Container shipping overcapacity forecast to worsen" – JOC.com, November 2, 2016
Throw in the recent bankruptcy of Hanjin (see: "A Major Container Shipping Line is Bankrupt; Worries for Christmas") as well as the impact of the new giant container ships that will pass through the newly expanded Panama Canal and you have an all bets are off situation for what was once a very stable industry. I, however, think things are going to swing in favor of those who import from Asia in the form of stabilized and in some cases far lower freight costs.
Here is what I think is going to happen:
- Unless there is a major trade war between the US and China, something I do not see happening, we are going to see a stabilizing of freight rates. The bankruptcy of Hanjin, the destruction of surplus container ships and a series of mergers and potential mergers will mean that capacity and demand will come back into balance.
- More containerized shipping passing through the Panama Canal and coming to east and Gulf Coast ports. As Washington Post reporter Steven Mufson put it in his article, "An expanded Panama Canal opens for giant ships":
The Boston Consulting Group and C.H. Robinson, a transportation logistics company, estimated last year that as much as 10 percent of the container traffic from East Asia to the United States could shift to East Coast ports instead of landing on the West Coast and finishing the journey by truck or rail. That, they said, would be rerouting volume “equivalent to building a new port roughly double the size of the ports in Savannah and Charleston.”
- Though freight rates will stabilize, east coast based companies could see huge savings. Here is an example provided by Mr. Mufson: If a shipment heading for Charlotte, NC "…landed in Los Angeles, it would cost $2,000 to send it across the country by rail. If it landed in Charleston, it would cost only $600 to send it the rest of the way by truck." That is a huge savings.
Bottom line, the trends seem to favor lower but stabilized prices for companies west of the Mississippi while east coast companies will see some major savings due to logistics changes due to the Panama Canal. Bad news for the container ship companies but good news for retailers and those who shop with them.