Container shippers’ three options: Shrink, merge or die


Container shipping lines need to shrink or merge to weather one of the worst downturns in decades, industry experts say.

Marine carriers face “gale force headwinds” this year, with the global container fleet expected to grow at twice the rate of demand, consultants Alix Partners LLP said in a report. The expansion comes despite deep declines in revenues and profits at most major shipping lines, Alix Partners said.

The report recommended that carriers consolidate in order to remove excess capacity from the market, either through mergers or by forming more alliances. Larger carriers can also reduce expenses to lessen the impact of falling revenues.

“Fewer competitors controlling more vessels should lead to more effective management of existing capacity and future vessel orders that would be more in line with demand forecasts,” the report said.

Most of the world’s largest container shipping lines are organized into operating alliances that allow them to share space on large vessels and keep costs low. Last week, France’s CMA CGM SA, the third-largest carrier globally said it was considering leaving the Ocean Three alliance when its contract runs out at the end of this year. Consolidation is also picking up, with CMA CGM close to completing its acquisition of Singapore’s Neptune Orient Lines Ltd., and two Chinese container lines merging earlier this month.

In the meantime, conditions continue to worsen. Utilization of ships along the world’s busiest shipping routes fell to 87% in 2015, from 93% a year earlier, according to Drewry Shipping Consultants Ltd. With a glut of ships available, rates on Asia-to-Europe voyages fell 42% last year, the consultants said.

To help curb the plummeting shipping rates, carriers have continued to “slow-steam” their vessels, or sail them at less-than-maximum speeds in order to save money on fuel. They have also started “void sailings,” where ships continue to sail but do not load or discharge containers at ports.

In 2015, void sailings reduced total capacity on the Asia-North Europe trades by nearly 1 million TEU, a common measure of shipping container volume, or 8% of the total volume on that route. Those efforts, however, were not enough to halt the slide in rates, Drewry said. The firm said rates will come under more pressure as new ships enter the market this year.

“Despite carriers’ best efforts to curb the supply-side growth, it wasn’t enough and spot market freight rates plummeted,” Drewry wrote. “The even worse news for lines is that they will have to go deeper again in 2016. With only minimal demand growth anticipated, carriers will need to be even more creative at hiding the 1.3 million TEU worth of newbuilds scheduled for delivery in 2016.” 

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