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Sunday, September 20, 2009

The Economy and Economics

Major global shipping firms are facing a hard time.  About 12 percent of the global fleet of merchant shipping is anchored just east of Singapore, with minimal manning.

In short, it is hard to over-emphasize how bad off the industry is—they have had to lay off 50% of their employees.  Two years ago they would charge $2400, or $1800 to a WalMart, to ship a container from Hong Kong to Long Beach (CA).  Today they are happy to get $800, which doesn't even pay for fuel, but at least is cheaper than mothballing.

Part of the problem for the shipping industry is the competition from cargo jet liners, where the firms have cut their shipping rates to compete and where current "just in time" inventory control.  This has cut into shipping by sea.

So, the theory of economics—when there is a surplus, prices go down, seems to be working out in the global shipping market.  To copy with this, shippers are taking ships out of service.  What we are not seeing is a rebound in global shipping, but supposedly we are seeing an uptick in air cargo business

Regards  —  Cliff

1 comment:

C R Krieger said...

Someone wrote and noted the following:

"You said on your blog that increased supply causes prices to decrease, a basic property of economics. That not quite right. It is a property of an ELASTIC market."

A good point. I do believe, however, that global shipping may be such an ELASTIC market.

This person then commented that "... but still think economics is a black art and far from science!"

But, then he is an MIT graduate.

Regards  —  Cliff