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Businessmen Who Don’t Understand Economics

ICS Chairman Polemis Calls For Shipbuilding Moratorium:

In the current global climate of “massive uncertainty,” with rates in all key segments highly volatile and barely economic for operators, he called for restraint from owners and intervention from governments. The global container fleet is set to grow 8.3 percent, or 1.28 million 20-foot equivalent unit, this year, while demand is expected to grow 6.5 percent, according to Alphaliner.

“What we also have to acknowledge is that many of the problems confronting shipping have undoubtedly been exacerbated by ship owners placing orders for far too many ships, with far too few cargoes to carry,” he said.

Polemis called on China, Korea and Japan, which account for roughly 90 percent of global shipbuilding capacity, to stop being “obsessive” about market share.

“Even if some shipyards go bankrupt, it is almost certain that their governments will step in to support them so that they can continue to produce ships which few people want — other than speculators who may be tempted by knock down prices — or China, having a widely recognised goal of wanting to carry a much larger proportion of its cargoes, perhaps 50 percent, on board its own ships,” he said.

There’s no question that excess building has driven down the cost of shipping, but it’s unclear why this should hurt anyone other than shipbuilders.  If you’re buying or operating a ship, it might also hurt its value on the secondary market, but only as long as the replacement cost also stays low.  From the story, it’s also not clear that Polemis is calling for government intervention, just acknowledging that it will happen.  But again, if you’re a buyer, it’s unclear why oversupply is a bad thing.

It reminds of people who blame the Great Depression on overproduction.

Posted in Business, Economics.