Why Shipping ETFs Could Sink or Swim
February 05, 2009 at 1:00 am by Tom Lydon
Container shippers are continuing on a trend all their own, but during the global slowdown many question if they are adding to their own demise, and compromising the performance of related exchange traded funds (ETFs).
Low Prices. The shipping industry at large could add to their own destruction as smaller companies get pushed out and global trade weakens. The idea is to keep the freight rates down until 2010, spurring trade business and keeping shipping part suppliers and products in business. John W. Miller for The Wall Street Journal reports that these large vessels are as big as a football field and carry things ranging from electronics to produce to automobiles.
Global Trade Drop. Shippers are eager to fill their vessels full with cargo, so in an effort to do so, they offer lower rates than usual. With overcapacity and a drop in trade, the bottom recently fell out on shipping rates. The rate for shipping a container from Asia to Europe has fallen to around $300, one-tenth the cost of a year ago, even as some shippers cancel regular runs; some ships will even take cargo for free.
The shipping industry runs the risk of running themselves underwater, so to speak, if the shipping industry cannot support the smaller players and continue to fuel business.
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