Government intervention in the support of ailing container lines is threatening the recovery in the market, according to Lloyd’s List.
By propping up loss-making shipping lines through state subsidy, oversupply in the industry is persisting longer than it should and the natural readjustment in supply and demand is being delayed as a result. This is keeping freight rates lower for longer.
The Chinese government has already helped Cosco and China Shipping to the tune of US$1.7 billion over the past seven years. Taiwan has provided $1.9 billion in financial aid to its shipping industry and South Korea has spent $871 million on establishing a ship financing vehicle which will allow domestic carriers to buy new vessels from local shipyards.
While providing some relief for the individual shipping lines involved, ultimately the industry as a whole continues to suffer as capacity remains stubbornly above demand, keeping rates depressed.
While protectionism is nothing new in the capitalist world we live in, the signs that state backers are beginning to tire of the constant support needed by the shipping industry are already there.
However, some countries have decided to pull the plug, with Singapore’s sovereign wealth fund Temasek allowing the sale of NOL to CMA CGM, rather than continuing to support it financially.
United Arab Shipping Company has also recently merged with Hapag-Lloyd to shore up its finances when the state chose to longer support it as a standalone entity.
