'Lines need to deal ruthlessly with over-capacity'

On the back of last year’s
second lowest growth rate
ever recorded in the shipping
industry, lines are tightening
their belts and industry
sources believe mergers and
acquisitions, and an increase
in vessel sharing agreements
(VSAs) could be the order of
the day.
According to French
shipping consultancy,
Alphaliner, its preliminary
survey of over 400 ports
worldwide reveals that
the global container port
throughput grew by only 1.1%
in 2015.
That was surpassed only
by the record low of -8.4%
in 2009 when the global
container throughput declined
due to the global financial
crisis.
And, although the latest
IMF estimates show that
global gross domestic product
(GDP) grew by 3.1% in 2015,
container volume grew by less
than half that. And it marked
the first time that the global
TEU volume growth to GDP
multiplier fell below 1x.
It has been steadily declining
over the last 30 years, dropping
from an average of 3.4x in the
period from 1990-1999 to
2.6x in 2000-2008, and since
2010 to 1.5x as the container
shipping industry reaches a
new level of maturity.
Several factors have
contributed to the lower
container throughput growth
in recent years. These include
the fact that conversion from
breakbulk to the containerised
mode of transportation
has plateaued; that there
has been an increased
share of manufactured
goods versus raw materials
transported by containers,
and a corresponding trend
of miniaturisation of
manufactured goods; and,
as the Chinese economy has
shifted towards domestic
consumption, foreign container
trade growth has fallen.
“The lower GDP multiplier
will have a significant
implication on the container
shipping industry,” Alphaliner
added, “as it continues to
grapple with a persistent
over-supply problem.” It noted
that the supply-demand gap
had widened in 2015, with
the global containership fleet
growing by 8.5% against that
low throughput growth of only
1.1%. “The gap is expected to
persist in the next two years,
with demand continuing
to grow at a slower pace
compared to containership
capacity growth.”
On the acquisitions/mergers
and VSA front, Matthew
Conroy, trade and marketing
manager of Maersk Line (SA),
was brief and to the point.
“Due to the global over-supply
of capacity and freight rates
continuing to slide, which is
evident in the latest round
of shipping line profitability
announcements,” he told FTW,
“the focus is to continue to
reduce costs.
“We have in the past seen
that mergers, acquisitions and
vessel sharing agreements are
mechanisms used to reduce
costs within the industry and
expect that will continue into
the future.”
Another shipping line
executive was more detailed in
his response.
“The main challenges this
year,” he said, “will be what
happens following the CMACGM
purchase of APL and
the merger of COSCO/CSCL,
as this immediately changes
or potentially changes the
make-up of global alliances as
opposed to VSAs.”
Will there be more? “Quite
possibly,” he said.
The larger problem however,
as our source saw it, remained
oversupply. “So,” he said, “even
consolidation/mergers and the
like make little difference - the
ships remain.”
But yes, he added, it was
very likely there would be
more consolidation that
would reshape global alliance
structures on Transpac,
Transatlantic and Asia-Europe
trades, and various fall outs
from this, which might change
the make-up of some VSAs.
“What is certain,” our source
said, “is it remains uncertain.
My issue is that carriers are not
ruthlessly dealing with overcapacity
which is severe and
getting worse given the growth
rates. That’s where the problem
lies.”
In some respects the carrier
structures from this latest
round meant little, he added,
because he felt that they were
more designed to dominate
and render extra market share
– “which is not what is needed”.