Survival Modesur·viv·al: n - continuation in life or existenceBy George Lauriat, AJOTThere is no question that the ocean carriers are in “survival mode”. They are fighting for the “continuation” of their respective businesses without the benefit of bailouts or stimulus packages. The ocean carriers have but one option: cut costs any place and every place to meet the reduced level of demand. Everything is on the table: staff reductions; outsourcing; re-negotiations of ship charters, shipyard delivery contracts and fees associated with ship calls; slow steaming; rationalization of rotations; reduction of canal fees; lay ups; and ship scrapping. But even with severe cost cutting it’s very likely that some operators will not survive this downturn. It’s a nightmare. There is a large orderbook of containerships that the shipowners are in no great rush to have delivered. According to AXS-Alphaliner figures (April 1st) the boxship orderbook stood at 1,045 units of 5.8 million TEU. Although this percentage is a great deal less than the 64% recorded in November of 2007, the tally still accounts for 46% of the existing fleet. The disputes between shipowners trying to delay delivery or outright cancel ships and the shipyards are already heated. Recently, wire services reported that Taiwan’s China Shipbuilding Corp (CSBC) is seeking damages from Zim, the Israeli carrier, for canceling orders for six containers ships worth a reported total of $220 million. Demand has fallen, especially in the two critical markets, Trans-Pacific and Europe-Asia. Even the niche trade routes like the intra-Asian trade and Latin American trade are now impacted by the downturn. Freight rates have correspondingly fallen to non-profitable levels on some strategic routes. Because of the general economic malaise, demand for scrap steel is low and thus ship scrap prices are also hitting the bottom of the barrel (less than 40 vessels have been scrapped this year). Although the boxship business has been hit the hardest, the dry bulk and tanker sectors have also been hard hit, meaning that even operators with a large portfolio of vessel types, have been overwhelmed by the rogue wave. The boxship business fell faster than the carriers or anyone else expected. Many of the 2007 annual reports from containership operator, contained forecasts of 10% growth or better for the business. The annual reports from 2008, offered a far more sobering appraisal. OOIL (OOCL’s parent) Chairman, Mr. C C Tung, wrote a succinct analysis of the situation in the company’s 2008 financial results: “China’s accession to the WTO in late 2001 saw a six-year upswing in the fortunes of container shipping as American and European consumption growth was met by Asian based production. With the deepening global economic downturn and increasing capacity in the industry, those buoyant conditions ended during the later part of 2008. We have now entered what I expect will be a protracted downturn for the container shipping industry.” Many in the industry share Tung’s views on the global economic downturn and future prospects for the industry. The million TEU question is whether the stimulus packages that the US and China have launched will have impact in the near term. If so, many economists believe some upward movement in the global economy could be expected this year and a gradual improvement by 2010. However, the huge orderbook, approximately 1.4 million TEUs due to be added this year alone and laid up ships coming back into service, may well slow any real recovery for the carriers for several years after emergence from the recession. STRINGS Just about every major carrier has significantly revised their string in order to rationalize and reduce costs. For example, the CKYH Alliance (Coscon, “K"Line, Yang Ming, Hanjin Shipping) in April announced that it was rationalizing its Far East–US East Coast services. Similarly, the Grand Alliance (Hapag-Lloyd, NYK and OOCL) and Zim Integrated Shipping Services also announced