London's nerve center for cargo shipping
D. J. Walker's words are decidedly uncheery. ``At the moment,'' says Mr. Walker, secretary of the Baltic Exchange here, ``you couldn't have a more gloomy field of activity than trade and transport.'' Much of the world's chartering of ships and of dry cargo takes place on the broad, marble-pillared floor of this historic exchange on St. Mary Axe in the City (the financial district) of London. For shipowners, the problem is that there are far too many ships in the world for the amount of cargo available.Skip to next paragraph
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``Freight rates in real terms [after removing inflation] are at the lowest levels ever,'' says Walker. ``It has been a very depressing scene for shipowners.''
In fact, for many shipowners the result has been heavy losses, or even worse, bankruptcy -- financial shipwreck.
There is considerable concern that some bank loans could go down with the sinking ships. International banks, according to one estimate, have as much as $70 billion tied up in loans for ship construction or purchase. After their troubles with loans to developing countries and the oil industry, bankers are hardly eager to face another storm.
The 700 limited companies and 2,300 individuals that are members of the Baltic Exchange are a diverse group. Some own ships. Several dozen are lawyers specializing in the shipping business. A small number are merchant bankers, marine surveyors, naval architects, and marine equipment suppliers.
The majority of exchange members are ship brokers, the intermediaries between shipowners and those seeking to transport goods and materials between the world's ports.
These brokers, as Walker likes to put it, ``scour the world'' to find cargoes for the ships they represent.
``Most business is totally and completely outside British trading influence,'' he notes. The brokers are continuing the tradition of a maritime nation long involved in the employment of ships.
As a result of the distances involved in this business, the average broker will spend one-fifth of his income on communications. Most operate on the basis of a commission running around 1.25 percent of the shipping charges involved in a deal. Their companies are usually small. But their revenues add up annually to some 250 million ($350 million).
Brokers do not face the same financial risks as the shipowners. Nonetheless, the decline in world trade in 1982 and '83 trimmed their business. And the recovery in world trade in 1984 and this year has pepped it up.
``There is a struggle to cover overhead,'' Walker says.
As he sees the situation, there is too much shipbuilding capacity in the world. New ships are still rolling down the ways of shipyards in South Korea, Japan, and elsewhere, sometimes ordered by developing countries, such as Egypt of China, seeking to build up national fleets and ignoring the surplus of ships.
These new ships usually have more-efficient engines than older ships, and thus can be more cost efficient. Adding to the world glut in ships, however, they have forced many shipowners to lay up their older ships or send them to yards in the Far East for scrapping.
A few owners have even scuttled their freighters, planning to collect insurance. Others steam slowly, thereby using less fuel, as they sail from port to port seeking more cargo.
The latest area for overbuilding has been container ships. ``This could be a factor in the immediate future,'' Walker says.
He suspects it will be ``a slow business'' restoring a balance between the supply of ships and the demand for their services.
Meanwhile, the exchange has been seeing more trouble over the sanctity of contracts as desperate shipowners (including governments) try to stay afloat financially.