‘Radical action’ needed to address shipping overcapacity

A “toxic mixture” of overcapacity, weak demand and aggressive commercial pricing is a threat to liner shipping industry profitability for the rest of 2015, said maritime analyst, Drewry in its latest Container Forecaster report.

This is a revision of its earlier forecast that carriers would collectively generate profits of up to $8 billion in 2015. Drewry now says that its revised view is that carriers “will be lucky to break even this year”.

It pointed out that carriers should address this by taking “radical action” to address overcapacity which is now plaguing “virtually all major trade routes”.

Despite first quarter industry operating margins of 8%, cost savings through falling oil prices were passed onto shippers by carriers in the form of much lower freight rates. And going forward, shipping lines will struggle to continue reducing unit costs in line with the expected erosion in freight rates, given stabilising bunker costs, according to Drewry.

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.