Saturday 10th Dec 2016 - Logistics Manager

Container shipping lines could to lose $5bn

Container shipping lines are set to lose $5 billion this year, according to shipping consultancy Drewry. However, it expects profitability to recover next year thanks to improving freight rates and slightly higher cargo volumes.

SOLAS rules ‘misused’, says GSAIn its annual Container Forecaster and Review, Drewry described Hanjin’s receivership as the trough of the market.

Worse than expected second quarter financial results will be followed by a better second half-year. But Drewry expects container carriers to record a collective operating loss of $5 billion this year.

“We forecast industry profitability to recover next year, thanks to improving freight rates and slightly higher cargo volumes, and so record a modest operating profit of $2.5 billion in 2017.”

However, the consultancy pointed out that even with an improvement next year, prices will still be below the 2015 average.

“A key unknown remains carrier commercial behaviour which has proven unpredictable and counterintuitive. Hanjin’s demise may mark a watershed in this regard, but liner complacency on the risks of insolvency may challenge this notion.”

Neil Dekker, Drewry’s director of container research, said: “Hanjin’s failure is the culmination of several years of poor commercial decisions and mismanagement, not just by Hanjin, but the industry as a whole.

“But it did not necessarily signal a major tipping point for the industry. It was more a side-show as freight rates had crucially already turned a corner at the mid-year point. More consolidation is likely, but is not necessarily the route to the promised land. Senior company executives talk about synergy savings of hundreds of millions of dollars, but this means nothing when it is all too easily given away in weak contract negotiations and the desire to maintain precious market share.

“The answer lies with fully addressing the revenue side of the equation and thankfully there are signs that the spot market is being addressed to some degree. The acid test for 2017 will be how the lines approach BCO contract negotiations.”