Freight News, Sea

Drewry sees red lines ahead

[ July 7, 2015   //   ]

Global shipping consultancy Drewry says that “a toxic mixture” of overcapacity, weak demand and aggressive commercial pricing is threatening liner shipping industry profitability for the rest of 2015, according to its latest Container Forecaster.

While earlier this year Drewry forecast that container carriers would collectively generate profits of up to $8 billion in 2015, now it is saying that they will be lucky to break even this year and some lines will be back in the red by the end of the year. “The only way to address this is for carriers to take much more radical action to address overcapacity which is now plaguing virtually all major trade routes,” Drewry warns.

Despite first quarter industry operating margins of 8%, cost savings from falling oil prices were passed onto shippers by carriers as much lower freight rates. Shipping lines will struggle to continue reducing unit costs in line with the expected erosion in freight rates.

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.

Recent decision by the Ocean Three lines to remove approximately 4% of trade capacity on the Asia-North Europe trade should help push rates up in July and August “but more decisive action is required here and elsewhere since void sailings are only a very temporary solution,” says the report. “As many as 129 ships of 8,000 teu and above still need to find homes across a number of trades in the second half of 2015.”