Little Hope for Mid-Size Container Lines

The latest Container Shipping Forecaster from Maritime Strategies International highlights the contrasting fortunes of liner operators and tonnage providers.

In the light of the current oversupply, and a demand environment which fluctuates between uncertain and disappointing, the industry is taking what evasive action it can on the supply side. September 2016 saw the second-highest monthly total ever for container ship demolitions, whilst new orders were confined to just three ships totalling 6,000 TEUs.

The liner operator landscape continues to respond to dire circumstances, but James Frew, Senior Analyst at MSI, says plans by the three Japanese liner companies to merge their operations reflects a trend that asks questions of the remaining mid-sized operators.

“In broad terms, we regard the liner companies with sufficient scale to compete on a global level being Maersk, MSC, CMA CGM, COSCOCS, Hapag Lloyd, the Japanese and Evergreen. Where this leaves other companies is something of a parlor game, but further consolidation appears inevitable. In the new world of consolidated liner companies it is increasingly hard to see a future for mid-sized lines.”

The entire container shipping industry remains under significant pressure. Whilst freight rates have improved marginally from the extreme lows seen over the middle of the year, most liner companies are now at best breaking even, with weaker lines still probably in a loss-making position. The situation is even worse for charter owners, with vessel earnings marooned below operating costs for most mid-sized vessel classes.

However, there is considerable variation in the extent to which market participants are in control of their own destinies, with liner companies better able to take decisive action to improve their situation whilst charter owners are largely price-takers with few options to improve either their market position or revenues, according to Frew.

“Whilst the operator side of the liner industry continues to be wracked by convulsions and consolidation, the tonnage provider space seems to be slowly sinking ever deeper into the mire. Container ship tonnage providers are at the bottom of the food chain, as ultimately liner companies can intermediate the supply of liner shipping capacity to shippers, and push excess capacity back onto the charter owners.”