LOS ANGELES — For the last five years, top shipping companies pushed forward with fat investments in more vessels, even as signs of trouble piled up.
The goal was to shore up profits by doing business on a larger scale as global trade bounced back after the recession. But the new business never came. Freight rates dropped and shippers’ revenues plunged.
Today, the supply of ships and their capacity is completely out of whack with demand. China’s economy has slowed and consumer goods flooding the U.S. have saturated the market to the point where there’s no more room for growth, analysts said.
And the industry is no longer under the delusion that it can grow its way out of trouble. That became clear with the Aug. 31 bankruptcy of South Korea’s Hanjin Shipping Co., the world’s seventh-largest shipper, which temporarily marooned $14 billion of goods as ships were denied access to ports from Shanghai to Los Angeles.
“That cozy assumption that carriers can’t be killed off has been eroded. We know they have breaking points now,” said Simon Heaney, an analyst at Drewry Shipping Consultants.
Hanjin began unloading ships at San Pedro Bay near Los Angeles last week, after a court in New Jersey gave the company protection from U.S. creditors, and a South Korean court OK’d the release of $10 million to process the cargo.
But the debacle is a sign that the economic failures that have been roiling shipping for years may be reaching a crisis point.
Shippers prepared for a bonanza that never materialized, and now they are paying the high cost of sending partly empty vessels around the world.
Global trade never fully recovered from the downturn, and is now growing at below 3 percent per year, a far cry from the 6 percent average rate from 1990-2008, according to the World Trade Organization.
The stall is visible at the nation’s largest ports, in Los Angeles and Long Beach, where combined cargo traffic is up only 0.9 percent through August.
Imports alone were down 10.2 percent at the Port of Long Beach compared with last August, and up less than 1 percent at the Port of Los Angeles.
The world’s fleet of container ships is likely to grow 2 percent faster than the demand for them in 2016, Moody’s Investors Service reported in June. Moody’s said the supply-demand mismatch would continue at least through next June.
The industry is expected to lose $5 billion this year, according to Drewry.
The problem has been magnified by the launch of several mega-ships. These vessels can stretch for five city blocks, and accommodate more than 18,000 20-foot containers.
“It’s as if the airlines went out and bought 20 percent more aircraft than they had customers to buy tickets, and then wondered what happened,” said Paul Bingham with the Economic Development Research Group Inc. “It was unsustainable.”
