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Just a few months ago, the going rate for a standard-sized shipping container on the Asia-Europe route was US$1,100 (S$1,690).
Today, amid plunging demand from clients to ship cargo, some shipping lines are charging just US$100. That is way below break-even rates, industry analysts say. As a rough indication, lines may need to charge at least US$550 to break even.
The move by Neptune Orient Lines to slash 1,000 jobs worldwide is an indication of the sort of financial stress the industry is under - and analysts expect more of the same.
In boom times, major exporting nations like China could not ship goods fast enough. At the same time, it was sucking in raw materials such as coal and steel at spectacular rates. That led to a rapid growth in demand for shipping capacity and a surge in ship-building activity.
Now, shipping lines are stuck with many vessels they simply do not need as trading volume slumps dramatically.
International freight rates have been in free fall amid a global recession that is seeing slowing demand for commodities.
The continuing chill in credit markets is making it difficult for buyers to obtain financing, say industry experts, resulting in fewer shipments, and this exacerbates the current surplus in shipping capacity.
For example, a key indicator of shipping rates, the Baltic Dry Index (BDI) - which tracks freight prices to haul commodities like coal and grain on some of the world's top export routes - has fallen by 90per cent since the start of the year, and has declined to a level last seen during the Asian financial crisis 10 years ago.
On the Asia-Europe route, container liners are now charging clients 70 to 90per cent less than at the beginning of this year, said two industry sources.
'It is supposed to be the peak season now, with Christmas and New Year round the corner, but we didn't see that surge in volume,' said one of them.
'It hit a peak during the third quarter last year, and since then it has been declining. The past two months, in particular, have seen a sharp decline.'
One source told The Straits Times: 'Firms will trim capacity, but will keep their presence there as it is the most important trade route and they want to maintain their client bases.'
Captain Ashok Batura, managing director of Sinoda Shipping Agency, said: 'This is far more dramatic than declines in the general market or financial markets.' However, he says the dry bulk market may see signs of recovery in the second half of next year, given that older ships will be scrapped, and excess vessels are being laid up. At the same time, fewer new vessels are coming on line as a result of the credit crunch.
'This is going to take some supply out of the equation and bring some relief to the industry,' he said. 'If anything is certain, there is going to be a significant degree of volatility over the next 12 to 24 months.'
'We believe the credit tightening facing dry bulk companies may not be resolved until the credit market improves and commodity prices stabilise,' said UOB Kay Hian analyst Stella Kei, adding that the BDI has likely bottomed out.
'We foresee that the market conditions for dry bulk shipping may not improve dramatically in the near term.'
Moody's Investors Service recently offered a negative outlook for the Asia-Pacific shipping sector over the next 12 to 18 months, which includes the dry bulk trade, tankers and container liners.
Citigroup said in a note that 'the global slowdown, credit crunch, shipping over-capacity and high operating costs have put substantial pressure on the shipping industry'.
The free fall in shipping rates has affected even the world's biggest container line, AP Moeller-Maersk, prompting it to cut full-year sales forecasts.
South Korea's largest shipping line Hanjin Shipping's container unit reported an operating loss after a 'sharp fall' in rates on Asia-Europe routes.
The slowdown is having an adverse impact here. Singapore ports handled 8.5per cent fewer containers last month compared to September, according to the Maritime and Port Authority of Singapore.
