AFTER DECADES OF solid growth, the global shipping industry is facing tough times. The overall level of seaborne trade has slumped amid the current world economic downturn, and the supply of cargo space greatly exceeds demand. By February 2009, both global imports and exports had tumbled for seven straight months, the biggest collapse in world trade since the Great Depression.
The world's largest economies are experiencing a pullback in consumer spending due to rising unemployment and declining household wealth, compounding the problems in worldwide seaborne trade. The rapid rise and fall in world oil and other commodity prices, tight credit restrictions, and a significant oversupply of ships have created operating difficulties for the industry and forced shipping prices to plunge at an alarming rate. By mid-2008, it was already evident that the shipping bubble had burst, and recent trends have only exacerbated the decline.
Today, global seaborne trade totals nearly 8 billion tons, and sea transportation accounts for more than 90% of goods traded between countries. Shipping is the lifeblood of the U.S. and global economy. Without it, export countries would falter and importers would face desperate shortages. More fundamentally, much of the world would starve, societies would remain divided, and globalization would slow drastically.
Within the U.S. economy, the shipping industry affects a large number of upstream and downstream industries. It is a crucial link between the world economy and the national and local ones.
Significant operational challenges have disrupted the shipping industry's supply-and-demand chain. IBISWorld believes structural fault lines in the industry will lead to the transformation of many other industries in the current crisis. Once the world's economies begin to recover, the number of employees, levels of industry consolidation, and overall competition in shipping and related industries will look a lot different from the boom years.
This article will analyze the shipping industry's boom-to-bust period, including the relationship between world output growth and the demand for shipping.
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From Boom to Bust
The global shipping industry expanded from revenue of $75.9 billion in 2001 to $148.3 billion at the end of 2008, an average 10.1% growth per year. Employment increased from 1.5 million to 1.6 million. This rapid growth in a very short time was supported by the industrialization of the Chinese economy, strong demand for shipped commodities (such as oils, ores, and grains), and buoyant developed-economy demand for cheap manufactured goods. The lifting and easing of trade restrictions around the globe also powered demand. On the supply side, advances in technology and vessel size made shipping an even more cost-effective form of cross-border goods transportation.
Over the past four decades, total seaborne trade has more than quintupled, expanding from less than 6,000 billion ton-miles in the mid-1960s to nearly 33,000 billion ton-miles at the end of 2007. (Shipping trade estimates typically are calculated in ton-miles--tons carried multiplied by distance traveled.) In 2007, the global shipping industry shipped about 8,020 million tons over a distance of about 4.11 million miles, close to 33,000 billion ton-miles of total trade (Figure 1). The year 2007 should be considered the peak for the sector.
For the U.S. shipping industry, which includes inland water and ocean water transportation, total annual revenue is set to drop 6.1% in 2009 to $28.6 billion--following a 4.7% fall in 2008. Over the two years that end in 2009, the percentage of job losses is forecast to be 3.9%. Hundreds of vessels will remain at dock as mines and manufacturers cut output. IBISWorld anticipates total manufacturing output will decline about 10% in 2009, and major shipping …