Falling oil prices lowering container carrier costs faster than revenues

Maritime industry analyst Drewry said it expects ocean carriers to “walk away with okay sums for the full year” in the latest edition of its Container Insight Weekly.    Falling oil prices mean that at major container liner companies “costs are falling faster than freight rates, enabling them to continue posting profits, albeit shrinking with each passing quarter,” maritime industry analyst Drewry said in the latest edition of its Container Insight Weekly.
   In a review of first half results of the 16 public companies that are among the 20 largest container carriers, the London-based company estimates “industry-wide unit costs fell by about 11 percent in the first-half 2015 versus the same period last year, whereas unit revenues were down by approximately 7 percent.”
   Drewry said of that group of 16, only Yang Ming and Wan Hai were able to improve their sales in the first-half of 2015 because of a “nasty combination of slow demand growth and worsening freight rates.” In aggregate, the 16 companies “collected just shy of $60 billion in container revenues in the first six months of 2015, down 5 percent on the same period last year.”
   “Despite this lackluster sales performance, the same carriers were able to more than triple their average operating margin,” which jumped from an average of 1.7 percent in the first half of calendar year 2014 to 5.6 percent in the first half of 2015.
   Drewry noted that while carriers are benefiting from introduction of larger and more fuel-efficient ships, “some of that benefit will be negated by the destabilizing effect on rates that these new ships are causing.”
   “Carriers need to somehow find a way to make GRIs (general rate increases) stick and boost revenue before costs start rising again,” said the consultant. While that will be a “difficult challenge,” it said it expects “carriers to walk away with okay sums for the full year.”