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The world has too many ships

By Matt Phillips

There are too many ships and not enough stuff to put in them.

The obvious economic result of that imbalance: The price to ship stuff is plummeting. The world’s most closely followed gauge of shipping prices, the Baltic Dry Index, has struck unheard of lows.

Why? China. At least partially. “We expect demand to remain subdued in 2016 and at a similar level to 2015 as China’s slowdown continues to weigh on demand for commodities (coal and iron ore),” wrote Moody’s analysts in a note published today, in which they lowered their outlook on the shipping sector to “negative,” reflecting a dour view on the sector for the next 12-to-18 months. The one spot of stability for the sector, the analysts point out, is the oil tanker sector. But even that doesn’t bode well for the global economy, as demand for tankers is focused on people using the megaships for floating storage rather than shipping crude to end users.

Of course this has ramifications that ricochet around the world, but especially in east Asia, where the bulk of the world’s ships are built. Major layoffs have been announced by shipbuilding giants in Korea. Shipbuilding is also one of the areas of overcapacity where Chinese officials have laid out broad plans to cut as many six million workers from state industries over the next two to three years.