Shipping industry overview and key operations

Business Research

Impact of the Current Economy on Industry

Shipping Industry Overview

The shipping industry has had a history of volatility owing to the time that elapses between the ordering of ships and containers and their completion and delivery. According to an industry analysis and overview appearing in the Economist, the 1970s saw an increase in orders by shipping companies for VLCCs (very large crude containers) from shipping manufacturers immediately prior to that decade's oil shock, leaving many companies with unnecessarily large fleets (2009, pp. 56). A similar situation is occurring in the current economy, the article reports, with a large number of new ships already ordered and in either the planning or construction phases, with some ready for delivery despite the fact that distribution and shipping companies no longer need the vessels due to the marked decrease in demand for goods and materials of all kinds in during the recent (and arguably ongoing) global recession (2009, pp. 55-7). There is some indication however, according to the article, that this issue will be mitigated by both the backlog of orders that shipping vessel and container manufacturers are experiencing, allowing for timely cancellations, as well as the plans to phase out many older vessels for both environmental and economic concerns (2009, pp. 56). The problem of an overabundance of shipping vessels is itself merely indicative, according to industry analyst Ainsley Thomson writing in the Wall Street Journal, of the major downturn in overall global shipping that the industry has experienced since the latter half of 2008 (2009, pp. B4). Though raw materials shipping saw a rebound in the latter half of 2009, the shipping of manufactured goods has yet to experience such a climb, and Thomson reports that the industry is likely to continue experiencing losses for some time to come (2009, pp. B4).

The Evergreen Group

As the world's fourth largest shipping firm, the Taiwan-based Evergreen Group of subsidiaries has certainly not been immune to the woes of the shipping industry, during this downturn, with industry reporter Ben Shen noting in the state-sponsored China Economic News Service significant losses for the company beginning in the second half of 2008 and continuing to the present (2010). Earlier in the present decade, the Evergreen Group began to bulk up its capacity through the ordering of a total of forty-nine new ships to be completed between 2003 and 2013, with Jason Dean of the Wall Street Journal quoting company chairman Chang Yung-Fa as saying, "The demand increase is far exceeding the capacity" of the company's shipping capabilities, a situation that was true at the time but that has almost entirely reversed now (2003, pp. A2). There are internal indications from the company, however, that their situation could be changing. Shen reports that the company, having scrapped the plans for many of the un-built ships in recent years, will again be ordering newer and larger vessels as trade again increases (2010). This comes as a dramatic turnaround from Chang's statements to the Economist only six months ago, in which he indicated that the company was preparing to scrap part of its large fleet in addition to halting orders for new ships (2009, pp. 57). The reason for this turnaround, according to Shen, is the rather rapid return to profitability that the company has seen in its Asia-European shipping routes, and an expected similar return to profits in the Asia-American routs in the coming quarters (2010). As trade once again increases, the new ships will lead to a more modern and more environmentally sound and economically efficient fleet for the Evergreen Group.

The Future of Shipping