A toxic mixture of over capacity, weak demand and predatory pricing by some of the larger players is forecast to produce a loss for the whole industry in 2015.
Earlier this year the respected industry consultancy, Drewry forecast that shipping container carriers would collectively make $8 billon profit in 2015. They have now revised their forecast and advise that they will be lucky to break even. The more likely scenario is that the majority of carriers will be in the red.
The average carrier operating margin for the 1st quarter was 8% and this was achieved mainly through falling oil prices that enabled carriers to reduce their prices whilst still making a profit. Freight rates have then continued to fall into the 2nd quarter but the price of oil did not.
Comparing 2nd quarter 2015 against the same period the year before, across the main trade lanes, freight rates have fallen an average of 32% and this trend seems set to continue despite attempts to push through rate increases, whilst at the same time reducing capacity by cancelling sailings, something that all four consortia of shipping lines are undertaking. During summer 2015 up to 129 ships of 8000 TEU size and above ( 1 TEU = 1 x 20ft container) are not in use which is a big drain on resources.
Whilst this is good news for importers and exporters, especially in Europe in the short term, in the medium term carriers will withdraw from the trade or go out of business. It is already rumoured that one shipping line is available to purchase now for $ 1, on the basis the lucky purchaser underwrites their liabilities.
Stability in the market leading to steady prices and a reasonable level of return for carriers which would be in everyone’s interest seems a very long way off. Instead it seems on the cards there will be a reduction in competition in the medium term which will invariably lead to a long term increase in prices.