Sunday, August 10, 2008

The Shipping News, 2

Ships On The Ocean

So I'd like to know
Where you got the notion
To...rock the boat
(Don't rock the boat, baby)
Tip the boat
(Don't tip the boat over)
--The Hues Corporation

1. In 1997 the currency and financial crises that swamped the export-driven NIEs of Asia and the Pacific soon revealed themselves to be just one face of that many faced coin of the capitalist realm, overproduction. The secret to money, after all, is contained within the secret of the commodity and not vice-versa.

The over-accumulation of industrial assets became, as it always does, the overproduction of commodities and declining profits. Failure to realize expanded value in the circulation of commodities necessarily reproduces itself in the devaluation of the means of production and the means of circulation. The secrets to accumulation and trade are in the secret of the commodity and not vice-versa.

By 1998, the shipping industry had absorbed, painfully, a 33% decline in asset values. Earnings per vessel declined. For the entire decade, the annual earnings per year average $4.2 million. Things were to get better, as they sometimes do. By 2000, the annual earnings had increased to $7 million.

Things were to get worse, as they always do, before they got better again, as they sometimes do. By 2004, earnings had recovered to $11 million per vessel per year, and 2008 estimates are for earnings of $13.7 million. Except estimates are often optimistic and early, and sometimes wrong.

2. 2oo6 was a very good year for the maritime trade; 2006 was a very good year for capitalism in general. In fact 2006 was the peak year for the recovery of capitalism, for its profitability, from the 2001/2002 contraction. The secret to maritime trade is in the secret of profitability and not vice-versa.

The UN's Review of Maritime Transport 2007, reporting on 2006 performance, noted that value of world merchandise trade had grown by 8%, twice the rate of growth of world GDP. Seaborne good tonnage increased to 7.4 billion tons with ton-miles increasing 5.5% as longer haul south-to-south trade increased.

The world maritime fleet increased 8.6%, exceeding the previous record for increase of 7.2% in 2005, Total fleet capacity measured 1.04 billion deadweight-tons (dwt). Oil tanker capacity increased 8.1%, dry bulk carrier increased 6.2%, and these 2 categories represent 72% of fleet tonnage. The highest growth in tonnage was recorded by the container ship segment which grew 15.5% to represent 12.3% of fleet tonnage.

The average vessel age declined to 12 years, with that of tankers at 10 years, container ships at 9.1 years.

"Productivity" measures, however, absorbed the impact of the record deliveries. Tons carries per deadweight ton of capacity declined to 7.3 and thousand ton-miles operated per dwt declined to 30.1. The surplus tonnage increase to 10 million dwt, with tanker surplus at 1.4% or 4.5 million dwt and dry bulk carriers at .6%, or 2 million dwt. Still, hardly anything to worry about. In 1990 surplus rates for the world maritime fleet measured at 9.7 percent.

The greatest growth in tonnage and ships was recorded in the sector that has been recording the greatest growth for more than 20 years, container shipping. Container shipping has grown from 7.4% of total dry cargoes in 1985 to 24% in 2006. Since 1988, container shipping capacity (measured in TEUs--twenty-foot equivalent units) has increased sevenfold. At the start of 2007, the container fleet capacity had increased increasing 16.2% over 2006 to 9.4 million TEUs. More than 1/3 of this fleet is less than 5 years old.

And, in 2006 for the first time since 2001, the increase in capacity exceeded the increase in the world's container trade which grew 11.2% to 1.13 billion TEUs.

3. A very good year was 2006. Shippers took delivery of almost 2400 new vessels, a record 71 million dwt, 20% above the 2005 mark.

Nothing inspires growth like growth; nothing inspires spending like spending. The bourgeoisie, see nothing in those floating fixed assets in good, or nearly good times, except an increased revenue stream; seeing nothing but clear sailing and a bigger wave ahead/behind; never seeing the deadweight in all those deadweight tons until the seas have dried up; never missing their water until their ships run high and dry, continued to fill the order books of shipmakers.

While deliveries slowed in 2007, orders for new shipping did not. In 2007 tonnage on order for container ships tripled from the 2006 level; tonnage on order for oil/refined product tankers nearly tripled; for dry bulk and general cargo carriers doubled. Since construction times from order to delivery are from 1 to 2.5 years, the merchant fleet will more than double between 2006 and 2010 as the generallow average age of the existing fleet means break-up rates (the process of tearing down obsolete shipping) will not impact overall capacity.

For the bourgeoisie to make so dramatic a statement of confidence in world-wide liquidity, and the accelerating growth rates for trade, it is of course more than fitting that such increased purchases were made right as growth in trade is decelerating and lines of credit are drying up. More than fitting, it is in fact the increased purchases, the increased expenditures on these floating fixed assets that are the means for circulating capital, that drives international capitalism from expansion to contraction, from expanded reproduction to declining rates of return.

No more and no less than the increased price of oil reapportions profits to, does more than channel the profits, more than canalize the revenue streams of all other industries, to the petroleum majors, but also measures the overproduction of the means of production, measures the inability of capital to realize a mass of profit quickly enough to offset a fall in the rate of return, the increased freight rates of the maritime shippers are more than a response to increased operating costs, increased fuel costs. Increased maritime rates measure a declining rate of return on investment brought about by the very "over-investment" in the industry's real assets.

In 2005, total world import values transported by the maritime fleet increased 13.4%, while the freight revenue from these shipment increased 31.2 percent. The average freight tariff for advanced countries amounts to 4.5% of the value of the goods in shipment. For developing countries, the ratio is 7.7% of the value. For the period 1990-2000, the tariff ratio had dropped 22% for the developing countries, only to begin moving upward again in 2004. For the advanced countries the tariff ratio has remained essentially unchanged.

The relative higher rates for developing countries are directly a factor of longer dwells (loading/unloading) at ports with lower throughput capacities. The inequity in development then refracts, and perpetuates, itself in a penalty, a microcosm of unequal exchange.

The price inflation of shipping rates cannot offset the declining rate of return for the industry. It will instead bring the over-investment, overproduction of fixed assets with longer and slower rates of return into painful relief, as there will be "too many" ships on the ocean, too many ships in the construction yards, too many ships on the order books, too many ships in the list of collateralized loans.


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