Merchant Marine and Naval Interest: UPDATED 3/11/2016

 HOW IS THE WORLD MERCHANT FLEET DOING?

Photo by Paul Brennan 

See Our related Postings of March 9, 2012 and May 4, 2012 on the Economic Health of America's "Jones Act Fleets and Yards" (updated) 

 UPDATES FOR 2016: As we review the end of the first fiscal quarter of 2016 we find the state of the World's merchant fleet not very far different than the below published assessment from 2012. New in recent months of 2015/16 ; some of the World's largest container ships are being idled, some are for sale and a few are reported as candidates for scrapping. The world wide shortage of trained certified, and competent mariners continues to shrink, yet marine wages are not rising. In a world dependent on shipping changes are afoot, but we do see as yet a pattern emerging other than the continued patterns of automation, improvement in the durability of coatings and other technologies, and the related shrinkage in crew size. Some how the shrinkage in both individual ship crew size on average, and the total global fleet size has not yet met the falling supply of trained mariners. Shrinking fuel costs have not improved shipping company profitability sufficiently to make up for falling revenues from shrinking carriage demand and rates. At the end of the first quarter of 2016, ocean shipping continues to simply muddle through.

 Previously in March and earlier in May we reported on the health of America's "Jones Act" or domestic fleets, those American owned and operated fleets that carry waterborne commerce coast wise or via interior waterways between destinations within the United States. We described how America has, since colonial times actually conducted more water borne trade between and among the states than between our nation and all other nations. In both March and May the short term economic indicators for the reserved and protected domestic trades looked promising. We noted then that the major threat to the domestic fleets was the looming labor shortage caused by adverse working conditions. In other postings we described some of these conditions and actions being requested of Congress for corrections. Today we report on the economic health of the world merchant marine, the trans-ocean shipping lines of the various national carriers and the open registry nations from the over all view of a global ocean trade carrying system. The Global system has problems as we head deeper into the second quarter of 2012.

 In a recent article titled U.S.Merchant Marine and World Maritime Review published in the May 2012 issue of the Naval Institutes's PROCEEDINGS (page 94) Capt. Shashi Kumar, Master Mariner, and founding Dean of the Loeb-Sullivan School of Business and International Logistics at Maine Maritime Academy described the "global outlook on shipping" as "somber". In the short term we agree, though like Capt. Kumar we also have to note a few bright spots. 

 As has been the case for a while now, the cruise ship industry in Europe and North America remains strong. The fleet today, if we consider all flags, numbers over 350 vessels carrying in excess of 15 million passengers. Not one of which is seriously using the cruise ship as a means of transport. The ships today are floating resorts that visit other resorts; virtually everyone is on some sort of vacation experience. Nonetheless, these floating hotels are important vessels in emergencies as was demonstrated in the 2005 response to the shortage of housing for emergency relief workers, fire service and police officers in New Orleans after the passage of Hurricane Katrina, or their use by the United States Armed Services in the Middle East during the Second Persian Gulf War as R and R facilities. Their potential as quickly converted hospital ships is obvious. The continued health of this industry sector appears linked to the general health of Western economies and the amount of discretionary income in the hands of the middle and upper middle classes. The health of the cruise ship industry is in marked contrast to the health of bulk commodity and liquid cargo shipping. 

 During the past year the U.S. stock market delisted eight U.S. carriers including the venerable American Commercial Lines, and other well known carriers such as K-Sea Transportation Partners,and  Trailer bridge. Continuing market uncertainties in Europe and elsewhere, and adverse economic pressures generally consisting of rising operating expenses and falling cargo availability and freight rates plagued much of the general cargo industry segment for the last year and the first quarter of 2012 with no real end in sight for the short term.  Globally new ship deliveries in the general cargo segment exceeded trade growth and overall utilization rates for the world combined merchant fleet fell below 84% as reported in the 2012 R.S. Platou data base. The container ship sector fared particularly poorly with nearly one fifth of the fleet severely under utilized. According to the Moore Stephens annual survey the average ship operating cost rose 3.8% in 2011and is expected to double by 2015. Crew wages and the costs of lubricants lead the upward charge in operating costs while fuel costs continue to be almost unpredictable. There has been a general global decline in the asset value of ships and consequently the value of ship owning and operating companies. 

 The bulk commodity sector picked up a bit during the second half of 2012 mostly due to increased demand for iron ore and coal by China. The tanker market was adversely affected by an influx of new ships from mostly Asian yards. In addition to the increased carrying capacity there was a decrease in demand for product due to the mild North American winter. World oil production is increasing as is world oil demand so with some tanker retirements, the tanker market should adjust to more favorable business conditions in the relatively near future. 

 In our two previous reports on Jones Act Fleets and their "Second Tier Shipyards" we reported relatively robust health. However our report was based largely on the performance of the WORKBOAT INDEX of common stocks. We did not notice until the global maritime trade picture began to emerge that the Jones Act fleet's relatively few large ocean transports mostly in the Continental U.S. to Puerto Rico, Alaska, or Hawaii trades had a positive effect on larger American ship yards. New Alaskan crude oil tankers for the Prince William Sound to U.S. West Coast trade helped keep the order books in certain of the larger U.S. ship yards out of the red. Unfortunately the larger vessel Jones Act fleet took a hit in the U.S.-Puerto Rico Jones Act trade where three of four carriers are in trouble and the Commonwealth Government is calling for a review of the effect of the Jones Act on the Puerto Rican economy.

 The World bank has lowered its world wide GDP forecast by about 1.5% while the International Monetary Fund is predicting a significant decline in world trade. Meanwhile new ships continue to enter the market. It appears that the global ocean shipping industry is braced for a long period of adjustment before corporate performance will be able to increase. In such conditions few merchant marines fare as poorly as the United States Merchant Marine which starts with a crew cost rate that is 2.7 times higher than its typical foreign competition. American Admiralty Books continues to point to the importance of the health of the domestic Jones Act sectors as the only viable "reserve" of American Merchant Marine labor, know how, and ship building capacity from which we as a sea faring nation will have any hope of recovery of this aspect of our sea power when favorable market conditions once again return. It is not just the American Merchant Marine that is suffering but all of our competitors as well. Unfortunately we have the least staying power for the large ship trans-ocean trades. If we fall too far we have nothing to build up from except our military sea lift reserves and our Jones Act assets. Our Military sea lift funds are severely constrained and the Jones Act is under attack in the U.S. Senate as we write.