By Alexander Jung, Thomas Schulz and Wieland Wagner
The Andromeda towers almost 40 meters (131 feet) above Hamburg's Burchard wharf, as countless feeder ships and container stacking vehicles bustle around it like insects around a bored elephant. Shipyard CMA CGN's new flagship container ship, one of the world's largest, boasts a 100,000 horsepower engine, can carry 11,400 containers, is 363 meters long and was delivered from South Korea only a few months ago -- at a price of $160 million (111 million).
The Andromeda was built for an economic boom that never seemed to end, at a time when more and more containers, bigger ships and ever-growing port facilities were needed.
With each passing minute, lift bridges hoist containers from the quay wall onto the deck of the 100,000-ton behemoth. When fully loaded, the vessel has space for containers arranged up to 18 wide, 86 long and 19 tall. In the end, the Andromeda is loaded to about two-thirds capacity. "That's not bad," says Captain Ivan Bozanic. "At least nowadays."
The next day, the CMA flagship leaves Hamburg for China, the point of origin of its 68-day round-trip voyage. The Andromeda travels exclusively between East Asia and northern Europe, a speedway of global trade. It steadily shuttles TV sets, mobile phones, T-shirts, and everything else China's factories are churning out, toward the West, and returns to the East loaded with finished parts, machines and empty containers.
Year after year, new and ever more massive ships were built, ports were expanded and new scheduled service introduced. The cargo capacity of the world's combined container fleet increased from 4 million TEUs in 2000 to 12.5 million today.
Many became rich in the years of the boom, including ship owners, bankers and investors, particularly in Hamburg. In the last decade, the northern German port city became the world's leading center for the financing and operation of new ships. Germans own 35 percent of the container ships in operation worldwide, and close to 60 shipping banks and financiers are headquartered in Hamburg. Hamburg-based Hapag-Lloyd became one of the world's leading shipping line operators.
A Stifled Boom
But now the global financial and economic crisis has stifled the boom in container shipping, and it has happened almost overnight. For the first time in its history, the industry has stopped growing and, in fact, is shrinking. In the first six months of this year alone, the shipping industry declined by close to 16 percent.
"There has never been a crisis like this before," says Reinhard Lange, the CEO of Kühne + Nagel, the world's largest sea-freight forwarder. Shipping line operators alone are expected to suffer combined losses of $20 billion in 2009.
Drewry Shipping Consultants, the world's top consultant to the industry, warns: "The industry is looking at the edge of a deep abyss." And industry publication Lloyds List writes: "Container shipping was thrown into a full-scale panic."
This sense of panic is more palpable in Hamburg than almost anywhere else in the world.
A Symbol of the Crisis
For more than a century, the Hapag-Lloyd headquarters building has dominated the Binnenalster, the lake that shapes the Hamburg cityscape. The inscription above the entrance of the magnificent structure, built in the Wilhelmine style, reads: "My Field is the World." The building symbolizes Hamburg's global importance as a port city and the 160-year-old, deeply traditional company's prominence as a world-class shipping company.
But now it has become a symbol of the crisis. Ironically, Hapag-Lloyd, consistently recognized in the industry as probably the most efficient among the major shipping line operators, is struggling to fend off bankruptcy. Its case has attracted the nervous attention of ship owners, banks and shipping company executives around the world. If a company like Hapag-Lloyd can't survive, they are asking themselves, who will be the next victim?
The traditional German shipping company lost 222 million in the first quarter, and it will need close to 1.75 billion to stay afloat over the next 18 months. "At current prices, we aren't making money on any route," Ulrich Kranich, the executive board member in charge of global operations, says, summing up the main reason for Hapag-Lloyd's financial woes. Shipping companies currently receive only about $500 to ship one container from Asia to Europe -- about $300 less than they need to cover their costs. A year ago, shipping companies were still collecting more than $1,500 per container.
'There Was Never a Shortage of Cargo in the Past'
Although the shipping industry has always gone through cycles, shipping companies now believe that things have changed drastically, and for the worse. "There was never a shortage of cargo in the past," says Kranich. But that's no longer the case today. Because of declines in consumption in the West and production in the East, the global container fleet's enormous cargo capacity can no longer be filled. The resulting sharp decline in prices means that almost all shipping companies are generating substantial losses.
Efforts by shipping companies to raise prices have been as desperate as they are ineffectual. Officially, at any rate, shipping line operators recently raised the fees they charge for service between Asia and Europe by $500.
However, higher rates have little effect on consumers and producers, because the costs of maritime transport hardly enter into the calculation. It costs $10 to ship a TV set from Asia to Europe, while shipping a vacuum cleaner costs $1 and a bottle of beer 1¢.
The invention of the container made such prices possible in the first place. Nothing has advanced globalization more since the mid-1980s than the boom in these steel boxes. China's rise to global economic power would be inconceivable without containers. The more shipping costs declined, the more it made sense for Western companies to outsource production to faraway parts of the world. "Chinese factories rarely have warehouse capacity," says Kühne + Nagel executive Lange. "They often produce directly in the container."
In fact, shipping costs are so low today that it is even worthwhile to ship Spanish tomatoes to China for processing into tomato paste, which is then shipped back to Europe. Dutch tulip bulbs are shipped to New Zealand and then returned to the European market in the form of mature plants ready for flowering.
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