Overcrowding in the shipping industry
A recent survey by global shipping data source Alphaliner has revealed that, of the 16 main carriers which published financial results for 2015, just half recorded operating profits in the face of challenging market conditions. On closer inspection, their average operating margin was just 0.3%.
It’s common knowledge that the container shipping market is overcrowded – ships have steadily increased in capacity so now, with slowing growth in freight volumes, there is a surfeit which threatens to de-rail industry profits.
Vessel capacity growth over the past 10 years shows an increase from 8,000 to 18,000 TEU (Twenty-foot equivalent unit). Estimates predict that, by December 2016, the total combined capacity of container ships worldwide will be around 21 million TEUs.
As one ultra-large container ship is launched, other shipping lines compete to follow suit, which in turn forces rates down. In the latter half of 2015, for example, the coupling of over-capacity with slow volume growth (of cargos) and low demand forced carriers to reduce rates.
In early 2016, rates plummeted further, with the China Containerised Freight Index showing a 30% drop in the first quarter compared with 2015.
With crude oil prices at a five-year low, carrier operating expenses should be showing a reduction, yet these falls in bunker prices – which initially boosted carriers’ financial performance – were eroded swiftly when lines forcibly passed their cost savings on to shippers through lower freight rates.
If you combine this outlook with the added issue of a global shortage of qualified seamen able to command big vessels (80% of marine casualties are estimated to be due to human error), ‘bleak’ is one word that springs to mind.
For meat shippers, however, a capacity-rich market and weak volume growth mean competitive offerings are there for the taking.
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