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Does anyone have a waterproof band-aid to stop the container market haemorrhaging?

By • Aug 6th, 2011 • Category: Containers

The Coracle Container market podcast for Aug 5, 2011 in association with GFI

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Thank you for downloading the container market report podcast from Coracle Online and GFI for Friday 5th August 2011. This report will look at the paper and physical markets.

Starting with the paper market and the Shanghai to North West Europe route and there was more selling interest in the market this week primarily focused on the prompt months. Despite the rise in the index today, it has had no impact on the forward curve as it is mainly fear that is driving the markets. With the curve still in a steep contango, nobody has the confidence to buy freight at higher levels. It is also worth pointing out that all the 6 months traded on the SSEFC, with the exception of August, all fell significantly in value over the course of the week. In terms of the Shanghai USWC route and similar to the NW Europe route, the forward curve lost value over the course of the week with more sellers than buyers in the market. On the SSEFC, the front month of August fell as the overhang of the US debt ceiling decision hampered on the confidence in the US economy combined with weak economic indicators earlier this week.

Now comments on the physical market and on the US routes, the Peak Season Surcharge announced by the TSA on Wednesday paints a very positive picture, but what we are hearing from both shippers and forwarders is that there is little optimism for a surcharge to be successfully implemented given that some carriers are still chasing for cargo. This is especially the case for the route to the USWC. The story to the USEC is slightly different, due to a combination of higher utilisation levels and the Panama Canal limiting the employment of too much capacity. This, in combination with cited shortages of 20’ and 40’ high cube containers makes us believe that there is more of a chance to have a successful implementation of a PSS. Weekly freight movements aside, we can’t deny the fact that we are economically in a bear market again and market fundamentals anticipate what happens in the real world. And if the recent spate of world statistics is any guide – whether it be GDP, trade, factory outputs or jobs – the world appears to be sliding in into recession.

On the Europe routes, after speaking to a number of large retailers in Europe this week, it seems that volumes have been drastically cut for Christmas. Many are anticipating a muted consumer spending environment. Despite this, carriers have recently announced a GRI / PSS to be implemented on the Asia – Europe trade lane for the 15 August ($100 – $200 / teu). It appears that they need to find a waterproof band-aid that will be able to stick and stop the haemorrhaging taking place in the market. Following the past two weeks of steady gains on SCFI’s Shanghai – NW Europe route, it is most likely that the announced GRI /PSS will this time not be postponed. The index is tracking higher slowly, but it seems unlikely that the full nominal value of the GRI / PSS will be implemented by the 15th of August.

The world economy is still dealing with the overhang of the excesses of credit accumulated in the Western world during the last 20 years. Consumers had too much debt and some could not perform on their debt, which resulted in a highly leverage situation in the banking world. Instead of dealing with the source of the problem – declining asset prices – the US government decided to inject more money into those banks that were insolvent, and not having the right risk management structure in place. The proof is in the pudding: there are still too many empty houses and too many consumers with high mortgages still in place. In a shipping update sent out by one of us In 2009, we already gave a solution on how to deal with the crisis. Very simply, to bulldoze houses with bad debts down. This reduces the supply side and creates demand. The only way out is to create inflation through a supply squeeze. However, politicians decided differently and started spending our tax payer’s money like there is no tomorrow. The average consumer has on top of its credit card debt and mortgage, now also a massive public debt. The economy is not growing: taxes cannot be raised. Unfortunately consumers and the electorate are stamping with their feet. Feeling overly in debt, they are deciding to pay off their personal debt, causing them to spend less on imported shoes, toys, or garden sets from China. Maybe we have to accept that this is the cause of the slow demand growth, and there is no easy way out.

Thanks for listening