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Amazing that this happens on top of such low prices for crude oil. What's going on? EDIT: Yes I read the article. Seriously, oil is so cheap and this still hap

Amazing that this happens on top of such low prices for crude oil. What's going on? EDIT: Yes I read the article. Seriously, oil is so cheap and this still happened? It's just mind boggling to me.

jonknee 10y ago
You should read the article, it's exactly about the question you asked. > Hanjin’s bankruptcy—and the abysmal performance of so many lines—is the result of overcapacity in the shipping industry. Since the financial crisis, too many vessels have been built and not enough scrapped, while the growth in global trade has decelerated.
- deleted 10y ago
  [deleted]
narrator 10y ago
A lot more cargo is getting shipped by rail to Europe from China with new tracks being opened up through Central Asia. Also, energy pipelines are getting set up between Russia and China, reducing the need to ship crude oil. This is largely due to the "One Belt, One Road" initiative that China is working on. It's basically a plan to build transport infrastructure all throughout Asia.
- walrus01 10y ago
  The amount of cargo that moves (in terms of number of TEUs per month) from China to Europe via rail is minuscule compared to the ocean cargo capacity. A train full of double stacked containers is a tiny fraction of the capacity of one medium sized 8000 TEU ship.
frandroid 10y ago
This has nothing to do with oil, it has to do with over-capacity in the industry.
- sqeaky 10y ago
  If we take your "nothing" to mean "nothing practical" to do with oil, then you are completely correct. If a boat could be operated for free, then overcapacity wouldn't matter, just ship boats underloaded. Of course there are costs so that notion is silly. I suspect he thought that fuel costs were among the biggest costs in shipping. I bet licensing and legal fee are the biggest costs, then I bet personnel cost come in second, then boat maintenance, then somewhere below that oil.
- r00fus 10y ago
  Does over-capacity indicate a reduction in worldwide demand?
  - themaninthedark 10y ago
    Short answer yes. Long answer, when the global financial crisis hit it lowered demand. But shipbuilding has a long lead time and shipyards can't/won't stop production(what do you with a half finished ship, you can't just put in storage). So all the ships that were ordered get built. By now the economy is starting to recover but your shipping capacity is greater than demand. So prices fall and the least efficient companies go bankrupt. http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html http://www.dailymail.co.uk/home/moslive/article-1212013/Reve... Shipyards are probably next.
neffy 10y ago
Oil is much less of a factor in shipping costs than people realise. These container ships are incredible, in terms of what they can carry versus the cost of the fuel.
- astrodust 10y ago
  The amount of fuel these ships burn is absolutely nuts, as much as 200-300 tons per day, approximately 65,000 to 95,000 gallons of the stuff, but the size of the ships is even more stupidly crazy, upwards of 150,000 tons, that they're actually quite efficient when you do the math. It probably takes 5,000 trucks to carry the containers stacked on one of the larger cargo ships and they burn way more than 19 gallons of fuel per day.
  - neffy 10y ago
    Exactly. I found an analysis I wrote a couple of years ago on it. For something like bananas, which are relatively expensive because they require refrigerated shipping, the total fuel cost for the sea part worked out at about 0.09 cents/lb. And as you say, the cost of road shipping dwarfs that.
  - dredmorbius 10y ago
    Shipping has always, and by always, I don't mean "since 1932", but since prehistory, been vastly cheaper than overland freight. The old time differential was about 20:1. Today, marine freight can move a ton nearly 1,000 miles on a gallon of fuel. Rail maxes at about 400 ton miles/gallon, trucking is about 50 tm/g. Adam Smith's Wealth of Nations has a telling comparison of ship vs wagon travel from Edinburgh to London in the 1770s. Smart money was in boats.
deleted 10y ago
[deleted]
bkor 10y ago
The bunker price is charged separately to customers. So low or high bunkers doesn't affect it that much. However, if a competitor is much more efficient with its bunkers you'd have a problem. At the moment, oil is cheap and there's no advantage of having efficient vessels. Hanjin doesn't even have efficient vessels. Their vessels aren't that big anymore, so they have a cost disadvantage vs the bigger companies.
AnimalMuppet 10y ago
Oil went down, so Hanjin's costs went down. So did everyone else's costs. But the problem was overcapacity. Everyone was lowering their rates, trying to get enough business to fill their ships. Lower oil meant that Hanjin could survive on lower rates. But lower oil meant that everyone else could, also, and they lowered rates to a place where Hanjin couldn't make it.

Amazing that this happens on top of such low prices for crude oil. What's going on? EDIT: Yes I read the article. Seriously, oil is so cheap and this still happened? It's just mind boggling to me.

jonknee 10y ago

You should read the article, it's exactly about the question you asked. > Hanjin’s bankruptcy—and the abysmal performance of so many lines—is the result of overcapacity in the shipping industry. Since the financial crisis, too many vessels have been built and not enough scrapped, while the growth in global trade has decelerated.

deleted 10y ago
[deleted]

narrator 10y ago

A lot more cargo is getting shipped by rail to Europe from China with new tracks being opened up through Central Asia. Also, energy pipelines are getting set up between Russia and China, reducing the need to ship crude oil. This is largely due to the "One Belt, One Road" initiative that China is working on. It's basically a plan to build transport infrastructure all throughout Asia.

walrus01 10y ago
The amount of cargo that moves (in terms of number of TEUs per month) from China to Europe via rail is minuscule compared to the ocean cargo capacity. A train full of double stacked containers is a tiny fraction of the capacity of one medium sized 8000 TEU ship.

frandroid 10y ago

This has nothing to do with oil, it has to do with over-capacity in the industry.

sqeaky 10y ago
If we take your "nothing" to mean "nothing practical" to do with oil, then you are completely correct. If a boat could be operated for free, then overcapacity wouldn't matter, just ship boats underloaded. Of course there are costs so that notion is silly. I suspect he thought that fuel costs were among the biggest costs in shipping. I bet licensing and legal fee are the biggest costs, then I bet personnel cost come in second, then boat maintenance, then somewhere below that oil.
r00fus 10y ago
Does over-capacity indicate a reduction in worldwide demand?
- themaninthedark 10y ago
  Short answer yes. Long answer, when the global financial crisis hit it lowered demand. But shipbuilding has a long lead time and shipyards can't/won't stop production(what do you with a half finished ship, you can't just put in storage). So all the ships that were ordered get built. By now the economy is starting to recover but your shipping capacity is greater than demand. So prices fall and the least efficient companies go bankrupt. http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html http://www.dailymail.co.uk/home/moslive/article-1212013/Reve... Shipyards are probably next.

neffy 10y ago

Oil is much less of a factor in shipping costs than people realise. These container ships are incredible, in terms of what they can carry versus the cost of the fuel.

astrodust 10y ago
The amount of fuel these ships burn is absolutely nuts, as much as 200-300 tons per day, approximately 65,000 to 95,000 gallons of the stuff, but the size of the ships is even more stupidly crazy, upwards of 150,000 tons, that they're actually quite efficient when you do the math. It probably takes 5,000 trucks to carry the containers stacked on one of the larger cargo ships and they burn way more than 19 gallons of fuel per day.
- neffy 10y ago
  Exactly. I found an analysis I wrote a couple of years ago on it. For something like bananas, which are relatively expensive because they require refrigerated shipping, the total fuel cost for the sea part worked out at about 0.09 cents/lb. And as you say, the cost of road shipping dwarfs that.
- dredmorbius 10y ago
  Shipping has always, and by always, I don't mean "since 1932", but since prehistory, been vastly cheaper than overland freight. The old time differential was about 20:1. Today, marine freight can move a ton nearly 1,000 miles on a gallon of fuel. Rail maxes at about 400 ton miles/gallon, trucking is about 50 tm/g. Adam Smith's Wealth of Nations has a telling comparison of ship vs wagon travel from Edinburgh to London in the 1770s. Smart money was in boats.

deleted 10y ago

[deleted]

bkor 10y ago

The bunker price is charged separately to customers. So low or high bunkers doesn't affect it that much. However, if a competitor is much more efficient with its bunkers you'd have a problem. At the moment, oil is cheap and there's no advantage of having efficient vessels. Hanjin doesn't even have efficient vessels. Their vessels aren't that big anymore, so they have a cost disadvantage vs the bigger companies.

AnimalMuppet 10y ago

Oil went down, so Hanjin's costs went down. So did everyone else's costs. But the problem was overcapacity. Everyone was lowering their rates, trying to get enough business to fill their ships. Lower oil meant that Hanjin could survive on lower rates. But lower oil meant that everyone else could, also, and they lowered rates to a place where Hanjin couldn't make it.