By MarEx 2015-07-07 09:20:43
A toxic mixture of overcapacity and weak demand as well as aggressive commercial pricing is threatening liner shipping industry profitability for the remainder of 2015 says the Container Forecaster report published by global shipping consultancy Drewry.
Earlier this year, Drewry forecast that container shipping carriers would collectively generate profits of up to $8 billion, but it has revised its view that containerized shipping will be lucky to break even in 2015. Drewry believes some lines will fall back into red by the end of year. Liner operators need to seriously address the overcapacity, which is plaguing virtually all major trade routes.
Despite Q1 operating margins of 8%, falling oil price savings were passed onto shippers by the lines, which provided lower freight rates. In the near future, liners will continue to struggle as freight rates continue to erode. But, one good sign is that bunkering costs have stabilized.
2015 global freight rates averages are expected to decline at their fastest pace since 2011, when unit revenue dropped as much as 10%. The outlook for liner freight rates has not been helped by second quarter spot-market rates for East-West hauls, which fell by 32%.
Recently, the Ocean Three Alliance, which is made up of CMA CGM, China Container Shipping Lines and United Arab Shipping Corp, agreed to remove approximately 4% of container capacity on its Asia-North Europe trade, which help the Alliance in July and August GRI initiatives to push rates up. But, more decisive action, because 129 ships of 8,000 TEU capacity still need to establish lucrative routes during the rest of 2015.
Today, another 10-15 ULCV’s are entering the market each quarter, which is exected to have an impact on liners in the Transpacific, Latin American and Asia-Middle East trade lanes.
Neil Dekker, Drewry’s director of container shipping research said: “There are not enough good routes for box-ships over 8,000 TEUs where they can be placed without doing some damage to the supply-demand balance. Ocean carriers do not want to idle these expensive assets. The orderbook is starting to get out of control with another 1.14 million TEUs added since January. Carriers’ emphasis on ordering so many big ships is starting to backfire and virtually all major trades are plagued with overcapacity. We are entering a new era, which will be dominated by mega ships. But, lines cannot keep adding capacity and expect there will be no substantial impact on unit revenues.”
This analysis is provided by an outside consultancy and does not necessarily represent opinions of The Maritime Executive.