Yet more turbulence ahead

COMMENT: For those who thought that things could not get worse, they will. At the beginning of the year there was optimism by some that 2016 would end up being a good year, however it is hard to see how anyone could have come to that conclusion, writes Ben Hackett.

The road signs have been very clear and the difficulties that shipping lines find themselves in now should not have come as a surprise.

NOL was “rescued” by CMA CGM but now that company has made a loss for the first time since 2012 and it has a huge debt repayment hanging over it due in early 2017.  HMM managed to get government support, Hanjin failed. It was clear for some time that neither company was in the best of health. Maersk Line is struggling to find ways to make money and it has announced that a drive for market share is one option. That usually ends up with dropping freight rates for all.

ZIM line has announced a large loss and needs to re-negotiate its debt burden and the three Japanese container lines are not looking healthy. Fortunately, they have large conglomerates propping them up, but for how much longer will that go on? Others have similar problems... the litany goes on.

The need for economies of scale has driven the industry to grossly over invest in capacity on the assumption that at some point in the not too distant future (as seen from 2010) demand would pick up. We have had such a large overhand of capacity for so many years that the prospect of improving freight rates seem like a distant dream, and there are still some very large ships on the order book for delivery next year.

There can be little improvement expected in the next three years. Trade growth to North America and Europe is meagre - under 2% - and next year is likely to be even less. Economic growth is weak and the IMF expects that it will be weaker next year. Add a possible Trump victory to the mix and trade agreements are in danger.

There will, or must be, more consolidation and some carriers need to cease operations - there is no other solution to ending the perpetual doom of the current situation.


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