Global container volume heading for worst record in seven years
There are speculations that the container volumes worldwide may settle for zero growth this year, indicating the industry’s worst performance in seven years.
This is coming as global shipping operators are withholding orders for container carriers amid a supply glut, thereby compounding the challenges faced by shipbuilding companies.
Reports by Container News showed that freight rates, the predominant source of income for shipping companies, fell 20 per cent in the benchmark Asia to Europe trade route last week compared with previous week to $767 per container, and there are not expectation that things will turn around soon.
Rates have mostly stayed well below $1,000 since the start of the year and operators say anything below $1,400 is unsustainable.
For example, Hanjin Shipping Company, South Korea’s biggest operator and the world’s seventh largest in terms of capacity, filed for bankruptcy protection last month and is under a court order to sell its own ships and returning chartered ships to their owners.
Container operators, which move everything from clothes and shoes to electronics and furniture, are burdened by 30 per cent more capacity in the water than demand.
Many are fighting for survival as freight rates barely cover fuel costs.
China’s slowing growth is considered the main cause of the industry’s problems. The economy of the world’s biggest exporter grew 6.7 per cent in the second quarter, far less than the double-digit growth figures of past years, as it tries to transform its growth model from heavy industry and construction to services and consumption.
The economies of two major importers the U.S. and the Eurozone expanded 1.2 per cent and 0.3 per cent, respectively in the second quarter.
A U.S. based maritime adviser, Basil Karatzas, said: “Global growth is just stumbling along and this has had a profound impact on shipping. Operators are bleeding money and if demand doesn’t pick up they could either go belly up or swallowed by bigger players.”
Most of the 20 biggest container lines, including A.P. Møller-Mærsk A/S’s Maersk Line, were deeply in the red in the second quarter and analysts expected them to report a collective $8 billion to $10 billion in losses for the full year.
Shipping analysts said any operator with less than five per cent global share of the container shipping market may be taken over by bigger players or be confined to regional trades.
Meanwhile, only four companies among the world’s top 20 have more than five per cent global share of that market. They include Maersk, Swiss-based Mediterranean Shipping Co., France’s CMA CGM and China’s Cosco Container Lines.
Chief Executive of Danish conglomerate A.P. Møller-Mærsk, Soren Skou, said Maersk Line, the group’s shipping unit and the world’s biggest container operator, is looking to buy smaller competitors “because many carriers haven’t made money for years and that can’t be sustainable in the long run.”