During the “golden age” of the shipping industry, freight rates in all the major shipping trade were heading skyward. The industry and particularly, the containers sector were awash with cash; banks were eagerly lending huge amounts at very competitive rates to ship owners who went on an expansion binge and aggressively enlarging their fleet. Ports were enjoying record throughputs, and thanks to the insatiable demand for all kinds of goods and materials, largely fueled by the spectacular growth in developing economies namely, BRIC countries (Brazil, Russia, India and China).

Between 2002 and 2004 as shown in Table 1, demand for containerized trade grew faster than the supply of container carrying capacity, so the industry ordered new tonnage. Usually, the new tonnage is delivered in a period time of two to three years, and from 2006, the supply of container ships on the market has been growing even faster than the demand. As the vessels ordered few years passed, continued to be delivered by the world’s shipyards, this led to a tremendous expansion of container ships fleet’s capacity. Thereafter, between January 2009 and January 2010, the world fleet’s total container carrying capacity increased by 5.7%; the difference in growth rates in 2009, amounted to an astounding 15 percentage points [3] .

The global financial and economic recession of 2008 has resulted in a sharp downturn of the economy and the shipping market. This has directly led to a rapid fall in demand for transport and related services. For example, throughputs in the world’s largest container ports; Singapore and Shanghai, decreased by 13.5% and 11% respectively in 2009 [4] . Added to the fact that earlier in June of the same year, the China Containerized Freight Index showed that Chinese exports were down 21.4% year on year, ever since China became the world’s factory. World-class ports including the port of Hamburg, Los Angeles/Long Beach and New York, have registered significant slowdowns compared to year 2008.

According to ECLAC (2009) [5] , the United Nation Economic Commission for Latin America and the Carib-

Source: UNCTAD Review of Maritime Transport 2009, updated with data from Clarkson Container Intelligence Monthly January 2010. Year 2010 is a Clarkson Research Services forecasting.

bean, the activity at the major region’s ports fell by 11.2%, less than the worldwide figures. Between July 2008 and May 2009, the number of containers arriving at Charleston, in South Carolina and one of the largest ports in the US, from the northern European regions the point of departure for German goods, declined by about 100,000. The total volume at the port has dropped by almost 18% [6] . This decline is attributed to low demand in Europe for manufactured goods on the back of the euro zone crisis.

The boom of the last few years was also due in large part to an abundance of available cash at low interest rates. Thus spurred by high yields, investors and banks have pumped hundreds of billions into the container shipping business, for then considered to be extremely profitable. Consequently, many companies in this market sector have heavily invested in new ships building at the height of the economic boom in 2006 and 2007. By the time these ships were delivered, demand for shipping goods had crashed, leaving the market with a surplus of very modern, very large vessels, and a greatly reduced order book.

Shipping companies such as Maersk were affected during the container-ships market recession as they ordered new container ships when the industry was booming. The orders for new container ships on the shipyards’ books represented a total capacity of 5.3 million TEUs, for about 50% more than current worldwide container fleet capacity. The delivery of new buildings with huge capacity has exacerbated the oversupply situation in already beleaguered trades.

In 2012, volume of imports in Europe dropped once again below the 2009 level. This caused an even larger overhang of capacity. In a nutshell, even without the 2008 crisis, the huge order book of new ships would have by few years ahead led to an oversupply of tonnages and a corresponding decline in vessel prices; and this has been made worse by the economic downturn. The containers ships fleet is forecasted to continue a steady growth over the next four to five years, and most of this growth is on account of ships that can carry more than 10,000 TEU.

At this point of the crisis, shipping line operators were no longer able to pay for their chartered ships; during the same time, the owners of the chartered ships and the shipping funds were no longer able to afford to service their debts to the banks. This has led many of the banks in maritime transport to bankruptcy. For instance, HSH Nordbank, largest bank lender for the shipping industry in the world, had outstanding ships construction loans worth 45 billion US$ on its book. Without adequate revenues for chartered ships, shipping companies would be unable to service their bank loans, thus forcing the banks to be more hesitant to issue credit.

Most of shipping line operating in container shipping services, which hadn’t a vast naval fleet were obliged to return back a large number of the chartered vessels to their owner by simply stopping contracts. This was the case of Hapag-Lloyd which got rid of ships it leased. The German shipping company owned, at the time of the crisis, just about half of its naval fleet of 128 container ships. The other half was leased and for this reason, was to be jettisoned more quickly. It is thus that about 30 chartered container ships were returned to their owners by Hapag-Lloyd. The others shipping companies had not renewed their charters either expired or about to expire; among them were CMA a French shipping company, and MSC a Swiss base company, just to mention few of them.

The largest shipping companies could have probably face off the crisis, but there remained a bloodbath among the smaller ones. During this financial and economic crisis, financially strong shipping companies have fueled the price war even further to gain more market share.

In fact, to mitigate or even counter the effects of the crisis, measures were taken; the shipping companies have laid up vessels and laid off workers around the world. Regardless, there were substantial cutbacks, job cuts and salary reductions were unavoidable, mostly due to the slowdown of the freight rate.

On ship builders’ side, as the orders for new buildings were decreasing as shown in Figure 1, shipyards around the world were running at only 30% of their capacity, thus cut down the workers’ salaries or worse laying off their workers were the foreseeable solutions to lessen the crisis impacts. Some years ago, the DSF (Danish Ship Finance) has predicted that about 4% of the world’s shipyards would have closed or gone inactive in 2012 and in the time frame of 2013 to 2014, several yards would be at short of orders [7] .

The brand new giant ships delivered at the peak of the financial and economic crisis, were too much big for the transported cargos, and they often sailed half empty if at all. The container shipping sector once one of the biggest beneficiaries of globalization, was then threatened to turn into one of its chief casualties.

The shipping line operators have suffered alone to the industry, a combined loss of about 20 billion US$ in 2009. The traditional German shipping company Hapag-Lloyd’s lost more than 300 million US$ in the first quarter of 2009 and needed close to 2.5 billion US$ to stay afloat.

In terms of the freight rate, shipping companies at the time of the crisis were charging about 500 US$ to ship

one container from Asia to Europe, counting about 300 US$ less than they needed to cover their costs. Prior the crisis, shipping companies were charging more than 1500 US$ per container [8] .

The Danish shipping company Maersk, owned by an oil and gas company also lost 373 million US$ in the first quarters of the beginning of the crisis. Others, like Singapore-based NOL, for example, posted 245 million US$ of losses, while South Korea’s Hanjin lost 110 million US$ [9] .

Shipping companies can reduce sailing speeds and thereby the fuel consumption to cope with the drop in freight rates over the last few years. Kirschbaum E. (2008) [11] estimated that a 10% reduction in speed can lead to a 25% reduction in fuel consumption.

The slow steaming means that the voyage speed of ships is reduced, which then makes it necessary to employ a larger number of ships to maintain the same frequency. For example, employ nine or ten vessels on a service that usually only requires eight ships; this option has two main potential advantages known as, the diminishing needs to lay off ships, and, saving fuel. Consequently, even though a low speed implies longer voyages, extra operating costs, charter costs, interest costs and other monetary losses, slowing down still pays off [12] .

To reduce loading capacity, ships are being decommissioned, and they better lie at anchor, unused, in ports, estuaries and bays around the world. Many surplus vessels are not effectively deployed and are instead laid off or idle. As of early 2010, 12% of global container carrying capacity was idle and anchored at different harbors [13] .

The numerous deliveries of new building ships in process are to be postponed and could less probably be cancelled as shipyards would not agree to lose the business deal completely.

Since the beginning of the crisis, many orders at the world’s shipyards have been rescheduled. The specialized shipping press Fairplay International Shipping Weekly, reported a “dearth of new orders with the renegotiation of existing contracts taking up more of the time of ships builders than new queries” [14] . The activities related to the container shipping in 2009 have focused primarily on the restructuring of existing order books and as possible the cancellations and the renegotiations of existing deals became increasing issues [15] . Accordingly, the forecasts for delivered vessels were adjusted downwards each month.

Orders of new ships have to practically come to a standstill. In 2007, 535 containership vessels were contracted, 208 units were ordered in 2008, yet in 2009 there were only two new orders [16] .

The ultimate option could resort in the demolition of the old ships of the naval fleet which due to the very high maintenance costs are becoming expensive to shipping companies to operate in time of crisis.

As the prices for scrap metal are very low, many vessel owners prefer to hold on for a better time ahead. They lay their ships at anchor rather than scrapping them. The demolition of existing tonnages will not be enough to compensate for the downturn in demand and for new tonnages that are still leaving the world’s shipyards to flood the market [17] .