Shipping lines need to revamp their failing business model if they are to survive the worst crisis since containerization began.
The term “wake-up call” is being heard more frequently from shipping executives as they contemplate GDP-sized losses this year. The problem is that it gives the impression of a gently buzzing alarm clock next to the bed.
The wake-up call being delivered to carrier bosses is more like a million bagpipers stomping around a giant tin can with cowbells dangling from their kilts.
The millstone – or rather, the albatross, to keep things nautical – around carriers’ necks is the giant capacity overhang that we have covered in previous blogs. Freight rates are being crushed. So many ships are laid up and being delivered this year and next that shipping executives at a Shenzhen conference yesterday estimated it will be 2014 before the lines will break even.
That’s another five years of losses! Absolutely incredible stuff.
It doesn’t matter if a line is state owned or in the hands of private shareholders, there is no way that anyone – government or otherwise – will keep pouring in bailouts to keep a carrier afloat for five years.
The only way the carriers can return to profitability is for them to find a way to absorb the overcapacity (not likely) and get the freight rates up. There has been some success on this last front, but carriers need to pull in the same direction for any sustained increase in GRIs to hold.
Don’t be shocked, but the lines, it seems, are not on the same page. They aren’t even in the same library if you remember a jaw-dropping statement earlier this year by the boss of Maersk. He stuck his hand up in a Danish newspaper and said Maersk was prepared to fight a rates war to aggressively defend its market share.
You could hear the collective groans from the executive suites of every line in the world.
Then yesterday, OOCL’s C.L. Ting said in Shenzhen that chasing market share in a down turn would guarantee a precipitous fall in freight rates.
Even for a journalist it is not a complicated concept. Lowering rates to keep market share means your competitor has to do the same, and pretty soon everyone is racing each other to the bottom. The industry has already bounced off the rock at the bottom and does not need to revisit it.
The sooner the carriers put profitability before defending their share of the market, the sooner they will exit this mess. Hopefully that is the message bring conveyed in the wake-up call.