 |
Cargo
executives might be concerned about low yields and poor
pricing on key cargo lanes, but the shipping industry
is in many ways struggling even more.
Without the panacea of
surging passenger demands to balance revenues, the world’s
container lines are coming to terms with bearish demand
and a long-term downturn in freight rates. The results
for most bottom lines have been disastrous.
Take global leader Maersk
Line, for example. The shipping behemoth racked up a
whopping loss of USD $151m in the second quarter. Compare
that to the profit of $507m recorded a year earlier.
The reasons for the downturn in its fortunes were clear—despite
increased loadings, Maersk’s average freight rate
decreased by almost a quarter year-on-year.
Maersk said container
shipping demand growth was running at 2 percent, but
the global container fleet was expanding at some 6 percent.
“Consequently, the market conditions continue
to be very challenging,” said the Line. “Unit
costs reached an all-time low of USD$1,911 per FFE in
the second quarter of 2016 due to a clear cost focus
and very tightly managed capacity.”
The average freight rate
continued to fall throughout the second quarter of 2016
due to lower bunker prices, weak demand, and overcapacity.
“Compared to Q2 2015, Maersk Line’s average
rate declined by 24 percent to USD $1,716, which is
the lowest average freight rate ever reported by Maersk
Line,” read a statement.
Maersk has a global network
but its bread and butter market is Asia-Europe and the
prolonged sluggishness of the European economy has understandably
had an effect. But Europe is not the only depressed
market.
Hong Kong-based OOCL
focuses more on intra-Asia and Transpacific markets
and, there too, performance has been dire. The line
saw revenue fall 15.3 percent and 14.7 percent year-on-year
on Transpacific and Intra-Asia/Australasia services,
respectively, in Q2. This despite liftings rising 14
percent on the Transpacific and 4.5 percent on Intra-Asia/Australasia
trades.
According to leading
shipping analyst Drewry, container volumes on key lanes
grew by just 2.6 percent on average in the first half
of the year. This followed the measly 0.8 percent growth
recorded last year, the second slowest growth on record
(2016 is on course to be the third lowest, after the
height of the financial crisis in 2009).
The entry into receivership
of Hanjin Shipping—the world’s seventh largest
line by capacity—in late August served as warning
to shippers and forwarders that the biggest global container
players can no longer be depended on to cope with steady
losses by cutting costs, reducing capacity, or relying
on government support. FlyingTypers will look
more closely at the fallout of Hanjin’s demise
in an upcoming issue, but its plight starkly illustrated
the fragile finances of many shipping lines.
The problem for carriers
is that they are unable to deal with costs as quickly
as revenues have declined due to slower than anticipated
demand. And capacity continues to expand.
With first half revenues
down by some 18 percent on average, liner incomes are
due to shrink by around $29bn this year compared to
2015 sparking further consolidation, according to Drewry.
“In the current declining revenue era for box
carriers, the pressure to find cost savings is mounting,”
said Drewry. “Prolonged losses will increase the
likelihood of more container M&A or industry consolidation
among carriers.”
Maersk is seeking cost
cuts totaling $250m per year in 2016 and 2017, a program
that will include reducing its personnel by some 4,000.
“We believe that freight spot rates have bottomed
out and we anticipate that they will increase in the
third quarter due to seasonal factors,” said Søren
Skou, CEO of Maersk Line.
“However, rates
will remain under pressure due to overcapacity and low
demand. And while we see improvements in, for example,
European imports, we maintain our expectation that the
demand for container shipping will only grow by 1-3
percent in 2016.”
Ironically, Hanjin’s
struggles gave rates an early September boost, which
may help its rivals recoup some of their 2016 losses
during Q3 and the Korean carriers customers urgently
seek alternative slots ahead of the holiday season.
But any upturn is likely to be short term given the
market’s fundamental imbalance.
The message for airline
cargo executives? It could be worse…
SkyKing |
100%
Green