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Rate war leaves container shipping in a parlous state

Rate war leaves container shipping in a parlous state
Containerisation was 60 years old this year but there was little to celebrate as the sector faces some of the worst market conditions in its history.

The state of the sector is drawing some colourful quotes with Hanjin Group chairman Cho Yang-ho saying bankrupt Hanjin Shipping lost the “game of chicken” played by large container lines over freight rates, while Soeren Andersen, ceo of financially troubled tonnage provider Rickmers Maritime, described likened container shipping to being “chased by a lion”.

A flood of ultra-large containerships first hammered the Asia – Europe trade as capacity came onstream at the same time that volume growth started to contract. Then a cascading of the previous generation very large vessels from Asia – Europe trade was to see other trades such as the transpacific dip sharply this year. With too much capacity chasing not enough volumes container lines engaged in vicious freight rate war, that has put almost every line into the red.

The resulting disastrous impact of container lines financial results was highlighted in this week’s Alphaliner newsletter. In a survey of the 13 largest container lines to publish their Q2 financial results it said carrier’s earnings were down to their lowest level since 2012. On average the 13 lines posted an operating margin of negative 9.2%, considerably worse the -5.5% seen in Q1.

Just one of the 13 lines – Wan Hai – a largely niche Intra-Asian operator – reported a profit. It reported a first six months net profit of TWD297.17m ($9.5m), significantly down from the gain of TWD3.16bn in the same period of last year.

Even Maersk Line, normally seen as one of the industry’s best performers reported a Q2 loss of $111m with a negative margin -2.2%. At the most extreme Hyundai Merchant Marine (HMM) reported a Q2 negative margin of -26.7%.

The third quarter was of course to see the bankruptcy of Hanjin Shipping, which sent shockwaves through the global supply chain. While this brought some much needed improvement to rates on the transpacific in particular, the outlook for the rest of the year remains an extremely difficult one.

“The negative performance is expected to persist in the second half despite a recovery in freight rates recorded in the third quarter, especially after Hanjin’s services were withdrawn in September,” Alphaliner commented.

“The rate gains have already started to dissipate with several carriers continuing to focus on grabbing market share instead of maintaining pricing discipline and the onset of the winter slack sea- son will put further pressure on freight rates as demand wanes.”