Global Container Volume on Track for Worst Year Since 2009
Flat growth in the beleaguered shipping industry could set off further bankruptcies and possible acquisitions
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Stacked containers sit among gantry cranes at the Port of Singapore on Sept. 15.
Photo:
Bloomberg News
Freight rates, the predominant source of income for shipping companies, fell 20% in the benchmark Asia to Europe trade route this week compared with last week to $767 per container.
Rates have mostly stayed well below $1,000 since the start of the year and operators say anything below $1,400 is unsustainable.
They aren’t expected to turn around soon. China’s Golden Week holiday starts at the beginning of October, marking the slow season for operators as many Chinese factories cut production levels after an output frenzy in the summer months when western importers stack up products for the year-end holidays.
“The industry faces its worst year since the Lehman Brothers collapse,” said Jonathan Roach, an analyst at London based Braemar ACM Shipbroking. “Demand is around zero and any moves to increase freight rates will likely fail.”
Hanjin Shipping Co. , South Korea’s biggest operator and the world’s seventh largest in terms of capacity, filed for bankruptcy protection last month and is under court order to sell its own ships and returning chartered ships to their owners.
Container operators, which move everything from clothes and shoes to electronics and furniture, are burdened by 30% more capacity in the water than demand.
Many are fighting for survival as freight rates barely cover fuel costs.
China’s slowing growth is considered the main cause of the industry’s problems. The economy of the world’s biggest exporter grew 6.7% in the second quarter, far less than the double-digit growth figures of past years, as it tries to transform its growth model from heavy industry and construction to services and consumption.
The economies of two major importers—the U.S. and the eurozone—expanded 1.2% and 0.3%, respectively in the second quarter.
“Global growth is just stumbling along and this has had a profound impact on shipping,” said Basil Karatzas, a U.S. based maritime adviser. “Operators are bleeding money and if demand doesn’t pick up they could either go belly up or swallowed by bigger players.”
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Shipping analysts say any operator with less than 5% global share of the container shipping market may be taken over by bigger players or be confined to regional trades.
Only four companies among the world’s top 20 have more than 5% global share of that market. They include Maersk, Swiss-based Mediterranean Shipping Co., France’s CMA CGM and China’s Cosco Container Lines.
Soren Skou, chief executive of Danish conglomerate A.P. Møller-Mærsk said in an interview that Maersk Line, the group’s shipping unit and the world’s biggest container operator, is looking to buy smaller competitors “because many carriers haven’t made money for years and that can’t be sustainable in the long run.”
Shipping executives say the Japanese container trio of Kawasaki Kisen Kaisha Ltd. , Mitsui O.S.K. Lines Ltd. and Nippon Yusen Kaisha Ltd. along with Hong Kong-based Orient Overseas Container Line Ltd. and Taiwan’s Yang Ming Marine Transport Corp. will likely be in the crosshairs of bigger players.
The crisis has hit some of the biggest banks financing shipowners. Royal Bank of Scotland Group PLC, one of the world’s premier shipping banks, said last week that it will be closing down its shipping business after failing to sell its portfolio.
Other banks, including Germany’s HSH Nordbank AG, Norddeutsche Landesbank Girozentrale, and Bremer Landesbank have been struggling with billions of dollars in non-performing shipping loans over the past few years.
Write to Costas Paris at costas.paris@wsj.com
