Container Shipping Market Suffering in 2016

Shipping freight rates for transporting containers from Asia to Northern Europe have plummeted a shocking 78% this year.

From $1,232 at the beginning of the year, rates have now fallen another 6.9% to $271 per 20-foot container. This occurred after another slow week on the world’s busiest route, and the current level is seen as a loss-making for container shipping companies.

Drewery Maritime Equity Research wrote in a note that “container shipping is staring at a terrible 2016 with a structural slowdown in global trade volumes, historical low freight rates and ever increasing capacity could result in an industry loss of $6 billion.”

Indeed, container shipping is one of the biggest industry drivers in the world. Shipping is so big that it accounts for 90% of the world’s trade.

This phase of slow trade has caused the industry to enter a ‘new normal,’ characterized by slowing demand growth and a lower freight rate environment, as well as lingering excess capacity and consolidation.

At an industry conference, Robbert van Trooijen, the chief executive of Maersk Line in the Asia Pacific region told delegates that shipping lines would need to get used to the new low rates and learn to operate with lower costs in general.

“We have seen declining rates of 2% consistently over the last 10-15 years, triggering the need of economy of scale so Maersk Line has been investing in larger ships to bring down unit cost,” van Trooijen said at the TOC Asia conference in Singapore.

In the face of many of these growing challenges, some carriers are taking action. Many new alliances, partnerships, and industry consolidations have been put on the table. CMA CGN is currently in the process of acquiring Neptune Orient Lines (NOL), and China’s two shipping conglomerates are merging.

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