[ced]

Anticipating major industry collapse, the Carrier Alliances showed remarkable discipline in aligning supply with demand as early as February; removing trade capacity from the seas by halting vessels and shipments. By doing so, the erosion of ocean rates was kept to a minimum. Basing their reaction on potential worst case scenarios, shipping carriers artificially created under-capacity. This made available space come at a premium and therefore significantly raised the cost of container shipping, stabilizing revenues for carriers.

If I'm reading this right, container shipping is an oligopoly similar to OPEC and they all banded together to reduce supply enough to raise prices, while in a competitive environment prices would have gone down due to reduced demand?

[lotsofpulp]

I doubt it’s that simple. There are significant costs to operating ships, and there may be a need to “smooth” supply and demand so sudden shocks don’t kill businesses in the system (on both sides).

I don’t know for sure, but I have been in businesses where you can’t just spin up and spin down at a moments notice if spot prices start bouncing up and down.

[csharptwdec19]

Part of the issue is modern accounting practices discourage holding on to money for a 'rainy day', the end result being our current state where profits tend to be immediately reinvested in growth or paid out as executive bonuses.

[pas]

It's not due to accounting per se, it's the corporate finance worldview. Money that's just sitting there is not making any returns. So let's put it somewhere (stock buybacks? "zero-risk" money market fund? some AAA++ rated synthetic CDO? dogecoin? well, the sky's the limit, just don't forget to risk-adjust the expected returns).

Businesses operate "lean", and if they need more money to weather the rainy days, they can issue bonds, or ask the shareholders to inject more capital.

And to make mattes even "leaner" basically market forces pushed risk management out to "specialists" too. Underwriting, counterparty risk, credit risk, traditional insurance, "default insurance" are all just financial products now, that can be built into standard language of shipping contracts.

[rsj_hn]

Blaming "worldviews" is fun and all, but the IRS will charge you if you retain too much cash.

https://www.law.cornell.edu/uscode/text/26/532

The tax code is set up with the assumption that corporations are pass-throughs -- they either re-invest funds or pay them out. Funds paid out are taxed as capital income by the recipient (often called "double taxation"). Corporations that sock away cash for a rainy day are viewed as evading this double taxation and are penalized rather harshly. This is another reason (but not the primary reason) why if you want to keep cash for a rainy day you need to have it overseas somewhere where the IRS can't penalize you for holding it.

[pas]

Earmarking money for "rainy day" is accepted by the IRS as "Specific, definite, and feasible plans for the use of the earnings accumulation" as far as I know.

Or course if that pile gets too big this won't fly.

[samstave]

So, what are all the shell/holding companies in the Panama Papers, carribean etc doing with that money? Is it being invested?

I recall an article a few years back saying Apple is the largest hedge fund in the world, run buy a small office in Reno NV - and they had a gigantic cash reserve sitting in the bank:

https://en.wikipedia.org/wiki/Braeburn_Capital

[pas]

The real-real-real true genuine answer is: it doesn't matter. We are not capital constrained. The central banks of the world issue/print money to keep the economy growing at a steady rate of ~1 percent. (For example the official target for the US central bank [the Federal Reserve System, aka the Fed] is 2 percent year-on-year PCE [personal consumption expediture] growth. But (!) at the same time the Fed has a dual mandate, to ensure close to full employment. And recently the Fed started becoming even more aggressive in addressing that: https://www.stitcher.com/show/voxs-the-weeds/episode/fix-rec... )

So it doesn't matter if Apple has a trillion dollar in the bank just sitting. The central bank will conduct open market operations to lower the rates of credit so people/companies are incentivized to start new ventures, finally invest in upgrading their old shit, buy a house with a lower APR, etc. And similarly when Apple starts "dumping money into the economy" the Fed will promptly raise rates to keep inflation in check.

Technically for those particular shell companies, yes likely.

For the general offshore companies (like Apple's), a very big yes.

This is a very accessible and detailed paper about how FDI (foreign direct investment) through offshore companies work, and how the high-tax-regime countries benefit the most (eg. the US): https://repository.law.umich.edu/cgi/viewcontent.cgi?article...

[lotsofpulp]

I recommend not using websites such as Zerohedge or CNET as sources of information.

[rmah]

Apple's money is not "sitting in the bank". Most of it is invested in various debt instruments (probably mostly US Treasuries).

[samstave]

I was referring to an article I read about this Reno office - and they specifically said that - that they were investing, but they ALSO had a crap ton of cash in the bank...

They closed that office and now I cant find that article.

[ethbr0]

Exactly. Which is a more competitive market?

One with a diversity of participants, informally colliding?

Or one with a few participants (because everyone else went out of business), informally colluding?

Ensuring profitable rates doesn't seem like a terrible use of collusion.

[Boltgolt]

This "Carrier Alliance" does sound an awful lot like a Carrier Cartel

[acrooks]

It's not quite how it sounds. There are a number of Carrier Alliances worldwide - "2M", "THE Alliance" and "Ocean Alliance". And there are a number of container carriers that operate independently without an alliance.

Since around 2008 it has been very difficult for ocean carriers of all types (not just containers) to turn a profit and so they all embarked on different strategies to try to become more efficient and manage costs. Before the Alliances, large ocean carriers needed to have an active and full network worldwide to attract customers. It's kind of like the transit problem: you don't get customers until you have a large network, but you can't afford a large network until you have a lot of customers. So many carriers operated routes that were loss leaders hoping to profit significantly off their mainline trades (you see the same in air travel).

The Alliances were one strategy to try to help these businesses become more efficient while still offering customers door-to-door shipping services, so in THE Alliance, there are a number of carriers each with different primary focuses, which means that they can operate much more efficient routes and take cargo wherever it needs to go.

The price of shipping a container is highly commoditized, there's intense competition in the market, and the margins are razor-thin, so I'm fairly confident that price-fixing isn't a significant factor in this industry. As well, as a shipper, the lions share of your costs getting a container from A to B are not the ocean transportation but everything else. Container storage at the port. Transport to the port. Loading and discharging costs. A multitude of fees that easily double or triple the raw container shipment number. Carriers have invested a lot in this space over the past years to verticalise and able to offer more of these services to their customers, instead of just being a pure ocean carrier. That (freight forwarding) is where the real margins are, and customers appreciate it because they get one simple upfront price, vendor management is easy, etc.

[samstave]

TBF, thats how Onasis made his fortune - as consolidating and buying up as much as he could, so yeah, it is an oligopoly in the sense that it rife with fraud, big money and old-boy sort of networks.

The EVERGREEN issue is interesting - They announced today that it could take weeks to free the evergreen - forcing all other vessels around the cape - adding at least 12-days to deliveries..

I would love to see a list of the traffic stuck behind the evergreen. It will be interesting to see what impact it will have on the EU economy.

[ABeeSea]

Freight is a low margin business with a history littered with bankruptcies. I think this was more for survival than an attempt to exploit a situation for profit.