“A toxic mixture of overcapacity, weak demand and aggressive commercial pricing is threatening liner shipping industry profitability for the rest of 2015,” Drewry said in its Container Forecaster report.
The consultancy has revised down its previous estimate that box lines would collectively generate profits of up to $8bn this year.
“This means that some lines will be back in the red by the end of 2015,” Drewry said. “The only way to address this is for carriers to take much more radical action to address overcapacity.”
“A toxic mixture of overcapacity, weak demand and aggressive commercial pricing is threatening liner shipping industry profitability for the rest of 2015,” Drewry said in its Container Forecaster report.
The consultancy has revised down its previous estimate that box lines would collectively generate profits of up to $8bn this year.
“This means that some lines will be back in the red by the end of 2015,” Drewry said. “The only way to address this is for carriers to take much more radical action to address overcapacity.”
Falling oil prices and lower operating costs are not helping the lines, either, as savings have been passed on to shippers as lines compete on rates for market share. Moreover, lines will struggle to reduce costs further now that bunker costs have stabilised.
While some capacity has been removed from some trade lanes — for example, the Ocean Three alliance removing some 4% of capacity on Asia-Europe — and July GRIs are pushing up rates, more decisive action is needed, Drewry said.
Drewry estimates that this year average global freight rates will decline at their fastest pace since 2011, when the fall in industry unit revenue was as great as 10%.
“The outlook for freight rate development has not been helped by second quarter spot rates in the four main East-West head haul trades falling by 32% year on year,” Drewry said.
The 10-15 ultra large containerships entering the fleet every quarter are now having a serious impact on the market, Drewry said. “The resultant cascade of tonnage into the transpacific, Latin American and Asia-Middle East trades is having a genuine detrimental knock-on effect.”
Drewry director of container shipping research Neil Dekker said: “There are not enough good homes for ships of over 8,000 teu 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 1.1m teu added since January.”
Carriers’ emphasis on ordering so many big ships was starting to backfire and virtually all major headhaul trades were plagued by overcapacity, Mr Dekker said.
“We are entering a new era which will be dominated by big ships and all ocean carriers need to be thinking of average headhaul trade route fill factors of 80%-85% as the norm, rather than 90% or more,” he said. “They cannot keep adding capacity and expect there to be no substantial impact on unit revenues.”
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