Drewry: Container Shipping Profitability to Continue Diminishing

Diminishing profitability in the container shipping sector is expected to continue until the end of the year keeping major carriers on the thin ice, according to the UK-based shipping consultant Drewry.

The downward trend that pushed the carriers’ revenues down in the first year-half, continues exerting pressure on companies’ earnings, with only lower fuel costs keeping profits afloat.

In practice, this meant that the so-called ‘Top 20’ carriers, together controlling approximately 65% of the world’s containership fleet, between them collected just shy of $60 billion in container revenues in the first six months of 2015, down 5% on the same period last year. This was attributed to low demand growth and worsening freight rates.

The drop in fuel costs means that carriers’ costs are falling faster than freight rates, enabling them to continue posting profits, albeit shrinking with each passing quarter. Drewry estimates that industry-wide unit costs fell by about 11% in the first-half 2015 versus the same period last year, whereas unit revenues were down by approximately 7%.

“Based on prevailing fuel and rates in 3Q15 so far we expect the story will be much the same i.e. diminishing profitability, meaning that the accumulation over the first 9 months will be enough for carriers to walk away with okay sums for the full year, regardless of what happens in 4Q15,” Drewry said.

Even though ship owners are trying to cut costs further by ordering of larger and more fuel-efficient ships, Drewry believes that some of that benefit will be negated by the destabilising effect on rates that these new ships are causing.

“Ultimately though, events outside their control are dictating their bottom lines and as such that represents a serious risk to sustainable profitability. Carriers need to somehow find a way to make GRIs stick and boost revenue before costs start rising again. That is a very difficult challenge,” Drewry added.

 

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