These 2 charts show why the shipping industry might be screwed
Getty ImagesShipping companies are now losing money every time they lease a ship
It's no secret that China's growth is slowing. Just a week ago the country's Premier, Li Keqiand, told the National People's Congress China's growth target for 2016 would be revised down to 6.5%-7%. In 2014 it was 7.4%.
A difference of less than 1% may not sound like a lot, but for "capesize" shipping companies – companies which lease ships of over 150 tonnes to transport raw materials – it's proving to be a big deal.
Bloomberg has written a report which explains what a sorry state the shipping industry is in, and two charts in particular really hit home how bad things are.
The first shows how much earnings have dropped for leasing a capesize ship:
BloombergWhen demand for exports falls, so does demand for ships. As such, the cost of leasing a ship has fallen to a record low. But financing and operating these ships – crews, storage and maintenance still costs money – means that owners are losing about $14,000 a day per ship. Source: Bloomberg
At this point, you might think shipping companies just have too many ships and should sell off their surplus. But again we have the same problem: vessels are now worth less than ever. In fact their value is almost 50% less than their peak in 2014.
Vessel Value via BloombergMany owners have borrowed to buy their shipping assets. If they bought a ship for $65 million, selling it for $35 million isn't a viable option. Source: Vessel Value
Unsurprisingly, share prices in the big shipping companies have crashed over the past year. Star Bulk Carriers Corp shares were $0.85 (£0.60) on March 10, while Golden Ocean Ltd were even lower at $0.69 (£0.49).
Short of a miraculous uptick in worldwide demand for goods, analysts say the only course of action is for shipping companies to junk their vessels. A record 85 ships were scrapped last year, but shipping analyst Herman Hildan says 340 would have to go in 2016 to get earnings back to normal, according to Bloomberg
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