“Britain’s Shipping Fuse”

Just when you thought there could not be any more bad shipping news, there’s more.

What I failed to discuss in the previous 3 shipping articles was the potential demise of the world’s shipping companies and the damage these failures could do to the banks that make the loans that buy the ships that ship the goods all over the world.

The collapse of Eastwind Maritime in the late summer sent shivers throughout the maritime financial sector. The problems the industry faces are covered in an interesting piece by Landon Thomas Jr. in the New York Times entitled, “As Shipping Slows, Banks and Carriers Fear Loan Defaults.”

Shipping companies and banks, in the UK, Germany, and Sweden, are concerned by the 25% drop in global trade; the affects it will have on shipping rates, and the over abundance of new ships ordered by these companies from the nation’s shipbuilders during the height of the economic boom. This shipbuilding problem was addressed in “The Shipping Blues,” the first article in The Cutting Edge shipping series.

But the problem now extends to the banks. Two of the already troubled banks in England, Royal Bank of Scotland, and Lloyd’s, are heavily vested in financing the shipping industry and failure here will add to their already insurmountable problems. The Bank of England infused the two banks with another $43 billion british pounds ($73 billion U.S.) just last week to stabilize them.

At the current decline in shipments some foresee a future oversupply of container ships by as much as 50%. To prevent that shipping companies are beginning to cancel or delay the delivery of the newly order vessels in an effort to reduce the size of their fleets.

The implication is that the perfect storm is forming for the shipping industry and their over-zealous lenders. That sinking feeling is real and could destroy any chance of a global economic recovery.

The fuse is lit. Now we’re just waiting for the explosion hoping that somehow we can avert disaster.

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