The global logistics industry was dealt a year full of surprises in 2016, and with that came challenges. For most ocean carriers, the first three quarters were extremely challenging financially. While these financial pressures have been ongoing since 2009 due to several factors, overcapacity was certainly one of the most prevalent. Ocean carriers continue to see their average operating margin dip below zero as rates fell to their lowest levels since 2009. All of this mounted to the Hanjin bankruptcy, one of the largest container shipping bankruptcies in history. This action will continue to accelerate the carrier acquisition activities in 2017.
- Carrier Consolidation
Some level of carrier consolidation will continue in 2017 and we may see entry of a new carrier into the transpacific trade. The three major alliances in 2017 will be 2M + Hyundai, The ALLIANCE, and Ocean Alliance. These three alliances will control more than 90% of the Trans-Pacific trade and 96% of Asia-Europe trade.
- Over Capacity and Vessel Scrapping
While we will continue to see some carriers work independently, the pressure for them to succeed will continue to mount. When we talk about new build capacity, we should expect to see about one million twenty-foot equivalent units (TEUs) being delivered, which is above and beyond the one million or so TEUs that are currently idle. Vessel scrapping will also continue at some capacity, but it is uncertain if it will be more than 2016, which saw about 600,000 TEUs.
- Supply and Demand Imbalance
Supply and demand imbalance will likely continue to plague the industry in 2017. When we look at the rate trends, they certainly took a spike post Hanjin’s demise due to the simple fact that supply decreased while demand increased overnight. The rates did taper down as time passed, and now importers are watching for an increase in January as demands spike prior to the Chinese New Year.
- Increased Bunker Prices
With OPEC and non-OPEC members deciding collectively to curb production of oil, we will likely see bunker prices increase this year as well. This in general is a key indicator that rates will rise since bunker is the main operation expense for the ocean carriers.
Overall, the massive rate swings do little good for the collective industry. Ocean carriers want to be profitable so they can reinvest in services, while customers want fair and stable rates. There will need to be a happy balance here for the greater sustainability of the industry. The coming year is bound to be volatile as the alliances reset in April and carriers continue to focus on volume as they differentiate themselves. Though these markets will undoubtedly stabilize, the industry’s immediate future is likely to remain unpredictable.
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Editor’s note: This post originally ran on Transportfolio . Since it’s a timely topic, we wanted to share it with you here on Connect.