Finacial crisis and shipping and ship repair Yards business - Essay Example

The Shipping industry is experiencing myriad problems and these problems have been created by the financial crisis, the financial crisis forced the banks to cut back on lending and the consumer spending contracted in many places. The same has made it very difficult to move goods from one place to another and there are very few goods these days that are being moved when compared to the time before the financial crisis. The shipments of various buyers are stuck at the dock and as a result of which the material is deteriorating with each passing day.

The letter of credit is very important when it comes to moving goods from one place to another. It is a must for the shipper to know when he will be paid for the goods that he loads in the shipment, which will be received by the buyer, but there is a lot of uncertainty that is affecting the shipping industry. Almost all the industries have been affected by the financial crisis and the case with the shipping industry is no different. A typical discussion put forward by shippers is that unpredictable fluctuations in the shipping industry are expected, because booms are normally followed by recessions.

However, the current gloomy financial circumstance the world is confronted with is the most difficult so far, and it hit the industry severely. Demand factors, such as prices of other goods, production costs, demand for other goods, the availability, and the big change in the cost of financing have played a very important role in the current downturn in demand for shipping, and freight services, including the decline for ship-yards new builds and repairs orders.Some shipping companies have luck on their side.

When the large Asian shipyards got overrun with orders in recently, and delivery times grew to up to four years, many small shipyards, especially in China, were simply created out of thin air. In many cases, contracts to build new ships were signed with these so-called Greenfield shipyards, which existed only on the drawing board. These shipyards no longer exist today, nor will the ships. Most of the existing Greenfield shipyards are likely to disappear quickly. This might benefit the big and financially strong Ship Yards, which might reflect in increasing seeds order to their facilities in the mid to long term.

On the other hand, supply factors are determined by the demand and freight services for shipping, along with the interest rates at the time. Suppliers went on seeking more and more excess capacity by ordering containers and new ships to meet the increasing demand. However the demand direction did not continue as was expected. The financial crisis has effected hard not only these shipping and ships building and ship repair sector, but also other related services as well.Shippers in North America, Europe and Asia have been hurt most by the crisis.

For instance, the contracted tonnage of containerizes cargo has went down by several millions of cubic feet. The annual reduction has been one of the most painful that business has seen. According to industry advisors and evaluators there would be a further reduction in demand for containerized cargo shipping will follow. The existing