"For most ocean carriers, the first three quarters of 2016 were extremely challenging financially, and one prevalent factor, over-capacity, remains in 2017," said Francois Wolberg, director, global textile logistics, C.H. Robinson. "Ocean carriers continue to see their average operating margin dip below zero, as rates fell to their lowest levels since 2009. However, at the same time carrier acquisition activities will accelerate, putting upward pressure on ocean shipping rates."
CARRIER CONSOLIDATION
C.H. Robinson's review of major ocean shipping trends concluded that some level of carrier consolidation will continue in 2017. The company also noted that the trans-Pacific shipping trade may see the entry of a new carrier. "We've already seen three new major alliances, formed in 2017 to boost business: 2M+ Hyundai Merchant Marine, THE Alliance (being formed by six carriers), and the OCEAN Alliance. And, these three alliances will control more than 90 percent of the trans-Pacific trade and 96 percent of Asia-Europe trade.
"Consolidation will continue to be a hot industry topic and trend as carriers continue to consider consolidation to gain better control over efficiencies and profitability," Wolberg pointed out.
OVER CAPACITY AND VESSEL SCRAPPING
While some carriers will continue to operate independently, the pressure for these shippers to remain competitive will continue to increase, the C.H. Robinson report stated. The company expects newly built capacity to be close to one million twenty-foot equivalent units (TEUs) for 2017, which is above the approximately one million TEUs that are currently sitting idle. Retiring old vessels will continue, but at what rate remains uncertain. In 2016, about 600,000 TEUs were scrapped.
SUPPLY AND DEMAND IMBALANCE
Furthermore, the supply and demand imbalance will likely continue to plague the industry in 2017. "When we look at the rate trends, they certainly took a spike after the bankruptcy of one of the industry's largest container shippers, Hanjin, due to the simple fact that supply decreased while demand increased overnight," Wolberg explained. "The rates did taper down as time passed, but now importers are watching for an increase in January as demands spike prior to the Chinese New Year."
INCREASED BUNKER PRICES
With OPEC and non-OPEC members deciding collectively to curb production of oil, industry players anticipate a rise in bunker fuel prices in 2017. "This in general is a key indicator that rates will rise since bunker fuel is the main operation expense for ocean carriers," Wolberg noted. "Overall, massive rate swings do little good for the collective industry. Ocean carriers want to be profitable so they can reinvest in services, while customers want fair and stable rates. There needs to be a happy balance here for the greater sustainability of the industry. The coming year is bound to be volatile after the [shipping] alliances reset in April and as carriers continue to focus on volume to differentiate themselves. Though these markets will undoubtedly stabilize, the industry's immediate future is likely to remain unpredictable."