Global Shipping Contends with Oversupply Problems

The global shipping industry is oversupplied. Because supply far exceeds demand, shipping rates have plummeted, as have the prices of ships. Some shipping companies have sought to capitalize on this trend by purchasing newer, larger ships at lower prices so that they can remain price competitive. But unless demand rebounds by the time these ships become operational, the industry's oversupply problem will only worsen.

It is unclear whether the global shipping industry will normalize before these new ships enter the market. Demand could rise as the global economy recovers, or the supply of ships could somehow fall. But the economy's recovery could just as well be slower than anticipated. Several factors could prevent the industry from righting itself, not the least of which are inaccurate forecasts of future market behavior. In fact, the current state of global shipping was caused in part by incorrect predictions of continued growth prior to the 2008 financial crisis. In any case, continued poor performance and a sluggish global economy could eventually force the shipping industry to restructure.