Downturn in Container Shipping Looms

Posted by admin on Mar 31, 2014 9:34:00 AM

The 2014 outlook for the container shipping industry appears bleak. The industry generally remains leveraged by significant debt amid continued fluctuating business levels. That onerous interest burden can be traced to the steady increase in leverage across the industry in the past decade, as carriers have invested in new tonnage. We are now seeing a number of profound structural changes in the industry that will have broad ranging impact. The race to build and deploy larger, more efficient vessels is both a cause and an effect of the persistent financial pressure. 

Change appears to be close on the horizon for the container shipping industry and its stakeholders. Financial indicators suggest that the scenario for carriers continues to deteriorate. Consolodation and cost cutting efforts may provide a change of fortune for some. Although the container shipping industry has for decades been subject to a vicious cycle of mismatches in supply and demand, this time the cycle has been different. There has been no sustained period of recovery in which the carriers could rebuild their finances. The impacts of this prolonged financial stress appear to have been increased by the extraordinary levels of investment required to keep pace with the largest carriers’ order books. Shippers remain uneasy about market conditions. Increased operational consolidation reduces choice in service offerings in any given market and potentially reduces competition, leading to higher rates. Financiers should approach the industry with caution. Carrier requirement for capital provides ready opportunity for investment, but such investment comes with high risk levels. In this environment, carriers, their customers, and investors should take strategic steps to preserve value and position themselves for success.

Topics: Supply Chain Management, Intermodal Freight