The overcapacity that has plagued ocean shipping firms in recent years will only grow wider in the coming years, The Boston Consulting Group Inc. said in a report.
The consulting firm said shipping capacity will outstrip demand by between 8.2% and 13.8% in 2020, compared with a 7% gap today. If borne out, that forecast would indicate this year’s plunging freight rates and shrinking profits for marine carriers will only grow worse, particularly on major trade lanes across the Pacific and between Asia and Europe.
The shipping industry hasn’t adjusted to a slowdown in global trade, with shipyards churning out giant container vessels and carriers holding onto excess capacity even as rates fall. Historically, container shipping demand grew over 5% annually, often outpacing global economic growth. Between 2015 and 2020, BCG estimates container demand will rise between 2.2% and 3.8% annually.
“In spite of this, shipping lines are still continuing to invest in new capacity, in larger vessels because this is the name of the game to keep costs down,” said Camille Egloff, a BCG director and co-author of the report.
Container fleets grew rapidly in the first half of the decade, with expansion peaking at 8.6% in 2015. That year, container shipping demand grew just 1.9%, as weak manufacturing activity in Europe led to fewer imports from Asia.
In the fourth quarter of 2015—just as French shipping giant CMA CGM landed the largest container ship ever to visit the U.S. at the Port of Los Angeles—global container trade sank 5.4%. CMA CGM later put off plans to launch regular service of six 18,000-TEU ships between Asia and the U.S.
Investment firm Jefferies said in a research report that it expects spot rates to “decline back below breakeven levels” once this year’s peak shipping months, which lead up to the busy holiday shopping season, are over. Many annual contracts on trans-Pacific routes were set below breakeven levels, the report said.
This week CMA CGM Vice Chairman Rodolphe Saadé told The Wall Street Journal he expects none of the top 20 container shipping companies will turn a profit in 2016.
Carriers will need to streamline their operations, cut costs and improve technology and service, BCG said. But the key lies within industry consolidation.
This week, Japan’s three largest shipping companies— Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd.—said they would merge their container-shipping operations, becoming the world’s sixth-largest competitor.
The move followed the bankruptcy of South Korea’s Hanjin Shipping Co. in August. The bankruptcy, which took many Hanjin ships off the water, has bumped freight rates higher in recent weeks, but analysts say the effects will be short lived.
Over the past year China’s two shipping giants, Cosco Group and China Shipping Group, merged their operations; France’s CMA CGM bought Singapore’s Neptune Orient Lines Ltd.; and Germany’s Hapag-Lloyd AG said it would merge with Dubai-based United Arab Shipping Co.
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Source: WSJ
