Drewry Predict 2016 Shipping ‘Trigger Point’


Further expected container shipping liner losses throughout the first half of 2016, exacerbated by the awful prevailing spot and contract freight rates will lead to a major trigger point at some stage in 2016, according to the latest Container Forecaster report published by global shipping consultancy Drewry.

This will happen either through radical capacity management at the trade route level and/or a much more sensible and logical approach to commercial pricing.

Global rate levels are no longer sustainable and with the lines’ GRI mechanism soon to be defunct on European trades due to new EU regulations that are about to be implemented, carriers will need to find new tools.

Drewry estimates that global freight rates will deteriorate further in 2016 while at the same time carriers will no longer be able to reduce costs at the same pace, given that the main advantages of lower fuel prices have already been realised.    

At the moment, ocean carriers continue to cling to the belief that the lower slot costs of the 14,000 TEU and 18,000 TEU vessels will bring them success.

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However, Drewry’s contention after a recent study is that the hoped for economies of scale are much reduced after vessels of this size are deployed.

The three months grace just given to beleaguered HMM does nothing to dispel the myth that ocean carriers are made of bullet proof material.

Asking shipowners to bail them out by drastically cutting charter rates is a sign of the times. Having focused on the cost side for so long, it is vital that carriers turn themselves to the revenue side of the equation if shippers are to have a sustainable container industry.

While global handling growth is forecast to reach an estimated 2.1% in 2016, the industry could get very ugly by H2, 2016 if current commercial trends continue.

Drewry believes a trigger point will be reached when more radical action on the capacity front will have to take place.

Neil Dekker, Director of Container Research at Drewry, said: “This inflection point will only deliver any kind of market stability if carriers start to use their in-house rate profitability models and offer commercially sustainable freight rates.

“Ocean carriers should be looking at revenue per TEU rather than industry load factors. In a world where overcapacity is a given on every trade, head-haul load factors of, for example, 85% need not be considered a disaster, by any means. With 2.6 million TEU of new capacity to be delivered by the end of 2017, this kind of load factor and potentially even lower is the new reality, so get used to it.” 

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