As a result of the 2008 economic crisis, the demand for cargo ships has dropped dramatically. Before the crisis shipping companies focused on building mega-ships to transport containers. However, the recession has made operating these mega-ships extremely expensive. In spite of the expenses associated with mega-ships, shipping companies continue to build them under the assumption that global trade will ramp up again. However, analysts believe that the age of big ships is over.
The Current Situation
At the moment 18% of the cargo ships in the world are idle. While shipping container capacity continues to grow, demand for new ships remains stubbornly sluggish. As a result of this situation, shipping costs have considerably dropped.
The bigger a ship becomes the riskier it is to operate. Big ships carry more containers, so they are responsible for millions of dollars worth of goods. The insurance premiums associated with this situation are astronomical. Big ships are also targets for terrorism and cyber attacks. Plus, there aren’t many qualified people who can operate mega-ships.
Mega-ships can’t even dock at a port unless it has been configured to accommodate them. Since mega-ships make fewer visits than smaller ships, many ports are wary of upgrading. When mega-ships do make stops they cause traffic jams and ports must pay overtime wages to workers in order to unload all of the goods. It’s simply difficult for ports to manage mega-ships.
The Future of Global Trade
The construction of mega-ships is based on the idea that global trade will continue to expand. However, the Organization for Economic Cooperation and Development believes that, while trade will continue to expand, it will do so at a much more gradual pace than it did during the past couple of decades. The slower pace is partly due to countries like China who plan to rely less on exports.
How Are Shipping Companies Reacting?
In spite of the current economic situation, shipping companies continue to build big ships. Many companies worry that if they don’t build large ships they will fall behind competitors. They also hope that they can drive smaller competitors out of business. Mergers are becoming increasingly common in the shipping world. Companies hope that these mergers will keep their businesses afloat, but eventually, they will have to realize that mega-ships are no longer sustainable in today’s world.