Drewry – container lines set to take heavy losses

Following the collapse of Hanjin Shipping in August, container lines are collectivelmy set to lose $5 billion this year according to shipping consultancy Drewry. However the consultancy believes that the industry is set to return to profit in 2017 in part due to improving freight rates and greater cargo volumes.

Drewery’s annual Container Forecaster Review describes Hanjin’s collapse as coming at the trough of the market.

For the industry as a whole, worse than expected second quarter financial results are set to be followed by a better second half year. Drewery now expects container shipping lines to make a collective loss in the region of $5bn this year.

“We forecast industry profitability to recover next year, thanks to improving freight rates and slightly higher cargo volumes, and so record a modest operating profit of $2.5 billion in 2017.”

Drewry however pointed out that even with an improvement next year, prices will still be below the 2015 average.

“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.”

Neil Dekker, Drewry’s director of container research, said: “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.

“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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