Drewry: Pressure Mounts on Carriers to Cut Costs

As the container industry revenues are contracting faster than carriers can cut costs, the shipping consultancy Drewry said that prolonged losses in the container shipping industry are likely to lead to more container merger and acquisition activity or more industry consolidation among carriers.

The container shipping industry is currently enduring a severe revenue contraction that is placing carriers under enormous pressure to squeeze more savings wherever they can and is driving the latest round of merger and acquisition activity.

The first-half 2016 financial results from some major carriers paint a very depressing picture for the industry, as first-half revenue was down by 18% on average.

Drewry said that, if the current situation continues for the industry across the full year, carrier income would shrink by some USD 29 billion against 2015. That would see industry revenue fall below the level seen during the industry’s nadir of 2009.

“The difference between 2009 and now is that back then the industry’s cost base was far higher, leading to a collective operating loss in the region of USD 19 billion. Shipping lines are now more cost-effective, but even so the industry will probably lose at least USD 5 billion this year,” according to Drewry.

With carriers waving goodbye to likely more than USD 50 billion of sales in two years since 2014, Drewry said that it should be no surprise that most of the big players are losing money and that some are close to the financial abyss, or that a number of lines are merging in order to better prepare for such hard times.

The latest results indicate that the second quarter was harder on carriers than expected with operating margins falling to the lowest point since the first-quarter 2012. Adding to carriers’ woes, the third-quarter peak season “will probably be a washout too,” Drewry said.

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