Ship owners have cut their prices in the slowdown so take advantage now as it's not set to last, says Andrew Larkham, commodity analyst at Mintec
The shipping industry has tanked. In the wake of the economic slowdown, nosediving demand and volatile fuel prices, ship owners have been forced to slash their rates by over 75% from their May highs for the most popular routes.
On the face of it, this spells good news for the food and drink industry, at least in the short term.
Skimmed milk powder, feed grain, cattle, wheat from Canada, soya beans from South America, grain from Australia and lamb from New Zealand are just a few of the foods transported by ship to the UK. And transporting them this way is now relatively cheap.
Shipping prices fell away globally as consumer confidence fell sharply in the US, Europe and elsewhere and demand has yet to recover. A fall in fuel prices has, however, provided a silver lining for ship owners, for whom the price of fuel amounts to approximately 40% of a tanker's running costs.
This means there is likely to be a short-term surplus of bulk carriers available to transport commodities such as grain. However, while the supply chain is now less expensive, the long-term effects of the economic crisis could be less benign.
Letters of credit, the lifeblood of the industry, are no longer routinely taken at face value and banks have started to refuse to accept them. This has led to some ship owners declining business because they are concerned they will not receive payment for delivery.
The problem has particularly affected the export-orientated economies of south east Asia, leaving some cargo ships stranded at ports. With exporters unable to arrange shipping without effective bank finance, ships are not moving, stocks have been piling up and exporters have been unable to trade.
Delayed shipments could lead to shortages and price rises, despite economic activity being subdued. Ship owners are faced with both a rapid downturn in world trade and credit problems of their own, and are therefore mothballing some of their fleets, or even scrapping older vessels, pending an improvement in the economic climate. Several of the larger shipping companies have reported sharply reduced profits and it is only a matter of time before we see a number of them announce massive losses, redundancies or even that they're going under. In the past few days alone, a couple of shippers have already confirmed they're cancelling orders for new ships.
When the economic climate does improve and companies resume their normal practices of importing and exporting commodities and finished goods, the leaner survivors will probably take advantage of their new market power to raise prices - which could end up being bad news for both retailers and consumers as the cost of increased pricing filters down through the supply chain.
Companies should take advantage of the short-term value for money that transporting goods by ship represents before the window of opportunity closes.
The shipping industry has tanked. In the wake of the economic slowdown, nosediving demand and volatile fuel prices, ship owners have been forced to slash their rates by over 75% from their May highs for the most popular routes.
On the face of it, this spells good news for the food and drink industry, at least in the short term.
Skimmed milk powder, feed grain, cattle, wheat from Canada, soya beans from South America, grain from Australia and lamb from New Zealand are just a few of the foods transported by ship to the UK. And transporting them this way is now relatively cheap.
Shipping prices fell away globally as consumer confidence fell sharply in the US, Europe and elsewhere and demand has yet to recover. A fall in fuel prices has, however, provided a silver lining for ship owners, for whom the price of fuel amounts to approximately 40% of a tanker's running costs.
This means there is likely to be a short-term surplus of bulk carriers available to transport commodities such as grain. However, while the supply chain is now less expensive, the long-term effects of the economic crisis could be less benign.
Letters of credit, the lifeblood of the industry, are no longer routinely taken at face value and banks have started to refuse to accept them. This has led to some ship owners declining business because they are concerned they will not receive payment for delivery.
The problem has particularly affected the export-orientated economies of south east Asia, leaving some cargo ships stranded at ports. With exporters unable to arrange shipping without effective bank finance, ships are not moving, stocks have been piling up and exporters have been unable to trade.
Delayed shipments could lead to shortages and price rises, despite economic activity being subdued. Ship owners are faced with both a rapid downturn in world trade and credit problems of their own, and are therefore mothballing some of their fleets, or even scrapping older vessels, pending an improvement in the economic climate. Several of the larger shipping companies have reported sharply reduced profits and it is only a matter of time before we see a number of them announce massive losses, redundancies or even that they're going under. In the past few days alone, a couple of shippers have already confirmed they're cancelling orders for new ships.
When the economic climate does improve and companies resume their normal practices of importing and exporting commodities and finished goods, the leaner survivors will probably take advantage of their new market power to raise prices - which could end up being bad news for both retailers and consumers as the cost of increased pricing filters down through the supply chain.
Companies should take advantage of the short-term value for money that transporting goods by ship represents before the window of opportunity closes.
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