Perhaps we tooted our horns a tad too early. All the talk of Asia-Europe and Trans-Pacific contract rates prepped to finally grow in 2017 has been scaled back and seems to be materializing as a temporary bandage on the so-called “new golden age” of container shipping profitability of merging companies and wildly popular acquisitions. A London-based consultancy, Drewry Shipping Consultants, mentions that they have “nagging doubts” about the industry’s return to profitability – due to ocean carriers excelling at self-sabotage that has proven via history so far to only shorten booms and lengthen busts, along with random pop-up companies that seem to materialize overnight. Drewry continues, “Consolidation will assist carriers on their path to becoming profitable, but conditions will still not be ideal for making large sums until the overcapacity situation is dealt with and the barriers to entry rise to deter competition.”
In short, with still so many ships to be built on the books, and a rate of “older” ships not being scrapped quickly enough, overcapacity is still the looming problem in a very small industry that has a feeble demand and is currently still self-inflicting havoc for everyone involved; with many expecting supply and demand to (hopefully) right itself again only in 2022. Drewry adds, “The industry’s profitability depends on the scale and longevity of any newcomers and the expansionist “dreams” of existing carriers.” What makes it worse are state-owned carriers that have their government support with undertones of expanding their country’s shipping trade, further procrastinating the rebalancing of supply and demand. Both the Japanese and the Taiwanese have taken a page out of Korea’s streak this season, with governments from both countries stepping in to financially assist their ailing shipping companies – which makes us pause to wonder how much lee-way the big carriers at the top bend to the will of their governments.
And of course, to top it off in an attempt to save money are mega-vessels. In a shipping container lines desperate attempt to minimize costs and stay afloat, the quarter-mile-ling Benjamin Franklin was born, taking the title of the largest cargo ship ever to dock at an U.S. port, with five more on the books to follow. With global growth and trade faltering and becoming sluggish after 2008, the benefits of sailing and docking bigger and bigger boats are quickly failing on their expected returns – proving that bigger is not always better. Global trade volumes collapsed under the 2008 financial crisis, killing the cargo business and destroying the industry with overcapacity. In addition, these mega-sized vessels have created traffic jams in the water near busy ports, as well as overwhelming workers on-shore struggling to offload thousands of containers. Ports are also struggling to prepare themselves for these new mega ships, upgrading their gantry cranes and mitigating trucks coming in to pick up after unloading. In conclusion, as carriers get together with companies to talk about 2017 contracts, while there does seem to be rising trends of understanding by businesses that contract rates are forecast to go up in 2017, the rates unfortunately have been unsustainable and it seems to be a long road ahead still.