Capacity Glut?

From WSJ:

Last year, the basic price of shipping a large container of goods from Asia to Europe, the world's busiest route, was $2,800. This week, with demand plunging amid a worsening economy, that price was an unprofitable $700.

That rate is "unsustainable," says Eivind Kolding, chief executive of Copenhagen-based A.P. Moller Maersk AS, the world's biggest shipping company by sales. The industry would be crippled if that price doesn't rise soon, he says.

Hit by the global economic downturn and a financial meltdown that promises an even sharper drop in once-hot trade flows, container-shipping companies are cutting routes and capacity to stem a sudden flow of red ink.

The past 10 years were a gold rush for shippers. China joined the World Trade Organization and sold hundreds of billions of dollar of goods to European and American consumers, who were enjoying low interest rates and steady economic growth. Factories relocated to Asia, stretching supply chains around the globe. Oil was cheap, ships were relatively scarce and shipping prices soared.

Container-shipping traffic on the Asia-Europe route rose at roughly 15% a year through the period. This year it will increase just 5%, says Philip Damas, of London-based maritime consultant Drewry Shipping Consultants Ltd. Capacity is growing much faster. "There's a glut of new large container ships entering the market," Mr. Damas says.

Other shipping routes, including Asia-U.S. lanes, also are suffering from declining demand. But the U.S. has tighter harbor space than Europe. Prices for the smaller ships docking in California, Texas and the East Coast have settled around a barely profitable $1,500 a container, analysts say.

Hurt all around. Fewer goods, means fewer ships are needed and fewer large warehouses and distribution centers. At least you can relocate a boat to a more profitable route, these warehouses are not going anywhere.