Container carriers should curb their “voracious appetite” for new ships and increase scrappage to control the current margin-crushing balance of supply and demand, AlixPartners said in a report.
New orders slowed and deliveries were deferred during much of 2017. However, the buying spree resumed in September, ensuring the continuation of such balance unless scrappage activity accelerates.
“The 2018 outlook for global container carriers is decidedly mixed. Although the industry enjoyed modest improvement in 2017, it still needs to address the dual challenges of rising costs and oversupply – driven mostly by fleet expansion – to keep the momentum going,” AlixPartners said.
“Rates will continue to be squeezed as long as supply continues to outpace demand for containerized services.” It pointed out that “consequently, total demand – at the very least – will have to meet expectations of a 4% to 5% increase to provide any real opportunity for margin growth”.
AlixPartners also warned carriers to beware of higher costs as operating expenses start to tick upwards partly due to rising bunker prices, which more than doubled between the beginning of 2016 and the first month of this year.
AlixPartners further said the industry remains to be susceptible to black-swan events ranging from the impacts of shifting geopolitics to cyberattacks.