Has global shipping turned a corner?

Shipping in 2016 was a difficult industry to be a part of with five mergers and acquisitions and one bankruptcy, together with a record scrapping of over 700,000 TEU of container tonnage. It was safe to say that the race to order bigger and more efficient container ships was a bet than ended up in a race to the bottom as rates sank.

 

But how did we get here? At the end of 2015 spot rates were dropping fast and this forced container lines to agree annual contract rates on the main Asia-North Europe and transpacific trades that were significantly lower. Once these rates kicked in the market dived to an all-time low at the end of the first quarter.

 

This led to several carriers losing large amounts of money with earlier estimates of an industry loss of $5bn-$10bn (however many believe the real figure to be far in advance of this).

 

Low rates together with an overcapacity in the fleet led to the subsequent collapse of Hanjin. The merger of the two Chinese state-owned carriers, Cosco and CSCL; the sale of NOL/APL to CMA CGM; the announcement of the 2018 merger of the container business of the Japanese trio, K Line, MOL and NYK; the proposed merger of Hapag-Lloyd and UASC; and finally, Maersk’s $4bn agreement to acquire Hamburg Süd all happened in 2016. One of these events alone would have been enough to change the landscape, but for all of them to happen in one year certainly meant that 2016 was a year of survival for most.

 

However, the final months of the year saw generally higher short-term rates, with the market average price for 40’ containers on the world’s number one trade route (Far East Asia to North American main ports) climbing from $1164 in April to $1716 by the close of 2016 and the number two trade route (Far East Asia to North Europe) climbing from $791 to $1878 by the end of the year.

 

This rebound in global shipping has been driven by carriers taking a lot of capacity out of the market, now only about 5 % of the global container fleet is idle (a notable improvement from the first quarter of 2016). The Baltic Dry Index (a barometer of global shipping) is up around 150 percent in the last year.

 

Baltic Dry Rate Index 2016-2017

 

Heading into 2017 organisations that can demonstrate reliability in their supply chain will find stability and growth, however profitability is still their major concern.

 

Even with an improving landscape there is still great uncertainty in the market and this is leading to shippers stalling the start of discussions regarding annual contract rates. As it stands, carriers believe they are in stronger position and so are happy to wait out the delay in the hope of locking in higher rates for 2017. However, if one or two carriers give in and drop their rates to gain market share this could send the industry back into a price war.

 

Throughout these tough times, JOH Partners has worked with our clients to provide high quality tailored recruitment solutions to identify key talent to drive business growth. Please contact us today if you would like to discuss your 2017 talent needs with us in more detail.

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