The Freight Rate Mystery Explained



Matthew Gore, Senior Associate, Holman Fenwich Willan


Despite persistent volume growth, in recent years many lines have seen poor financial performance. Underlying adverse market conditions have been the imbalance between supply and demand, causing major fluctuations in freight rates. Increasing orders for ultra-large vessels, now in the region of 20,000 TEU, have generated overcapacity, driving rates down further. The combined effect of overcapacity, depressed rates and container flow imbalances has been to reduce profits significantly – down 15% in the last five years for the top 20 carriers. This figure would be worse were it not for the inclusion of those lines which have countered this trend and outperformed competitors.

Liner performance

Strong financial performance has largely been limited to the world's biggest lines, most notably Maersk Line and CMA CGM; MSC's performance is difficult to judge accurately due to its private nature, although its plans to expand capacity substantially suggest that it too has strong underlying finances. By contrast, smaller operators in general have persistently struggled in recent years.

This divergence raises the question of why bigger lines are outperforming their smaller competitors. This in turn leads to the question of what the future holds for the industry, how market conditions will change and how all lines, regardless of size, will have to adapt. Firstly, it is worth examining the market pressures which the industry has faced recently. These have been varied, and lines' responses diverse.

Post-recession blues

Central to low profits has …

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