Bloomberg alert as Goldman Commodity Rout Snares Ships

Duluth Trip - May 2014 - MV Paul R. Tregurtha arrives in Duluth, by Pete Markham, on Flickr

Interesting transport economics in Bloomberg maritime news published on May 6, 2015.

The collapse in global rates for shipping commodities from the world’s mines to mills and utilities will persist until at least 2020 on a glut of vessels and stalling cargo growth, according to Goldman Sachs Group Inc.

Read “The World Shrinks for Goldman as Commodity Rout Snares Ships,” By Jasmine Ng at http://bloom.bg/1PpSTI5

A Few KEY POINTS.

1) The shipping lines have missed out on transferable economic lessons learned by North American railroads these past three decades.

2) Strategic planners need to balance capacity they add to their Balance Sheet to the likely downside of market demand

3) TOO MANY SHIPS “From the iron ore pits of Western Australia and Brazil’s Sudeste to the coal pits of Indonesia and South Africa, mining companies have experienced the end of the bull market in commodities,” Lelong and Cai wrote in the report dated May 6. “Now the shipping industry is feeling the impact.”

The daily charter rate for a Capesize vessel slumped below $10,000 from a peak of more than $100,000 in 2008, according to Goldman. “There’s still this structural overcapacity in dry-bulk shipping”… Goldman cited slumping rates for hauling iron ore from Western Australia to China, described as the busiest dry-bulk trade route in the world. The estimated cost of shipping one ton sank from $44 at the peak in early 2008 to $4.40, it said. Global demand for seaborne iron ore, thermal and coking coal may expand only 2 percent this year

4) HOW LONG The slows growth will likely last into 2018. That compares with an average of 7 percent between 2005 and 2014, Goldman said.

Summary Observation

The impact of too much ocean shipping capacity has direct implications as well for many global pending rail freight projects. Too much rail capacity is not a smart business plan. Emerging nations have to adapt to the new commercial realities.

What do you think?

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