The bankruptcy of South Korea’s Hanjin Shipping represents the “trough of the container shipping market”, Drewry believed, but the industry overall will improve next year on the back of rising freight rates and slightly higher cargo volumes.
With container carriers forecast to record a collective operating loss of $5bn this year, Drewry said a modest operating profit of $2.5bn from them can be expected in 2017.
The anticipated recovery, however, needs to be put into perspective, Drewry cautioned.
“While average freight rates are expected to improve next year, this will follow several years of negative returns and will still leave pricing well below the average for 2015. 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.
“Fuel prices are also on the increase and carriers are extremely wary of costs. This may support higher freight rates via the bunker surcharge mechanism, but it also increases operational costs,” it said.
A major positive is that orderbook is at a virtual standstill, coupled with increased scrapping. But even so, the next two years will continue to be challenging on the supply side with annual fleet growth of between 5-6% and many more ultra-large container vessels (ULCVs) to be delivered.
“In reaction, the industry is rapidly consolidating by necessity rather than by design. Those carriers who can weather this prolonged storm have a chance of emerging the strongest in 2019/20,” Drewry said.
Drewry highlighted that carriers have not focused on revenue and with increasing debt this is a genuine issue for the industry in view of Hanjin Shipping’s failure. Drewry estimated that revenue for 2016 may reach $143bn, but this compares to $218bn back in 2012.
Neil Dekker, Drewry’s director of container research, commented: “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,” Dekker said.
He continued: “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.”
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