The container shipping industry is expected to continue to struggle with overcapacity and an inability to deliver value to shareholders, warns consultancy McKinsey & Company in its latest report.
As container lines search for successful paths forward, they need to first determine what their strategy and potential role in the continuing industry consolidation will be. While mergers will continue, they do not need to be feared, just managed—and the guidelines in this report provide a starting point.
"Bad times will persist, despite the value container shipping brings to the world," warns the report.
Container shipping brings significant value to the world, yet delivers little to its investors. It has driven the global economy for the past 25 years; without container shipping and the globalization of supply chains that it enables, worldwide GDP would be reduced by $15 trillion.
Container shipping has enabled trade that has lifted hundreds of millions out of poverty. Despite these achievements, the industry continues to produce low rates of return, which destroys value for owners.
"We estimate it has destroyed over $100 billion in shareholder value over the last 20 years. Its profitability was particularly poor between 2011 and 2016, when the industry average return on invested capital (ROIC) was consistently lower than the weighted average cost of capital (WACC)," says the report.
Overcapacity is the key reason for the poor performance, and, unfortunately, it is here to stay. The current supply of container capacity afloat is about 20 percent greater than demand. We understand the challenge that lines faced over the past decade (2007 to 2016): as competitors ordered new, more efficient tonnage, there seemed to be no choice but to do the same or fall behind.