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Global financial recession

Loss of demand for freight is a major problem right now globally. The consequences of the global financial recession are biting hard on the freight industry. As stated earlier, there has been an unprecedented 90% reduction in freight charges. This has been caused by the reduced trading activity worldwide as the global economy hits recession and hopefully not depression.

The consequence of the reduced activity in export and import industries globally has caused ships to be laid off and even has had orders for new ships cancelled in droves (Naked Capitalism, 2008). Of more particular interest is that it has been reported that some companies are actually reconsidering some delivery orders for freighting. Fortscue, a major shipping company, has been reported to have” abandoned its long-term shipping contracts” using legal technicalities to slip its way through responsibility (Fitzgerald, 2008).

When a ship cannot fill its loading capacity and is forced to charge lower than regular prices then the formula for operating at a loss has been written. The effect of this is what we are seeing in the ship industry today. Ships are laid off and orders are reconsidered. According to Schumaker (2008), the drop from a record high in May to

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a 22-year low in December is a bit too much for a cyclic period fluctuation. This means that there either has to be a way of finding optimal fleet usage capacity or finding a way to create demand.

The latter is much harder as the factors affecting the demand for shipping costs are beyond the control of the company. There is no way the company could single handedly lift the strain off the global demand so as to ease the demand single handedly and create a financial reprieve. The option left is to find a way to cut costs while still struggling to get all the money available from the few orders. One exceptional impact this has had is the sharing of ships between routes as done by the company.

Shipping digest reporters Bonney and Leach (8th December, 2008) have shown that the recent unification of companies to share ship space has the projected result of reducing costs. This has also been further aided by the additional port calls added to the normal route. Another surprising method of cutting on costs is by having the ships operate slower. This has already been seen in the industry before as some statistics put the speed cut at around 20% (Rohter, 2008).

These measures are highly favored to enable the operators to stay afloat during this financially oppressive season. The industry is set to see more of these tactics to reduce cost and take care of available demand. Another suggestion was put forward by Mr. Kang (2008). He suggests that by taking advantage of the internet. His logistics company aims to use the internet to aggressively market itself, a method hat this shipping company can adopt too.. the internet has a wider audience and can be used at effectively less rates. (Schuchun, 2008)

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