Container shipping faces persistent overcapacity

Lower bunker prices are a temporary windfall that won’t last, according to predictions from Boston Consulting Group.    Persistent overcapacity in container shipping “is still plaguing the industry. What’s more there is no market recovery in sight,” according to a report from the Boston Consulting Group entitled “The Transformation Imperative in Container Shipping.”
   “Sharply declining bunker prices at the end of 2014 resulted in windfall profits, but savvy carriers understand that these will provide only temporary relief,” said BCG in the report.
    The consulting group forecasts container vessel capacity to grow by 30 percent by 2019 and its analysis suggests the slow growth in demand for container transport “will flatten even further, driven by a slowdown in manufacturers’ offshoring production to lower cost countries as well by plateauing containerization,” meaning that “most commodities suitable for containerized transport have already been migrated to containers.”
   Containerization had been growing at 2.2 times global GDP between 2003 and 2007. That multiplier factor fell to 1.4 times global GDP from 2010 to 2014, and BCG predicts the average will fall to 1.3 times global GDP this year through 2019.
   While the largest carriers like Maersk Line and CMA CGM and smaller niche carriers such as Wan Hai and SITC have managed to remain profitable, “many midsize carriers are stuck in the middle between those extremes.”
   Container liner carriers have fared worse than related business like shipbuilders, shipowners who charter containerships to liner operators, financiers and brokers. But those businesses have, on average, also underperformed compared to other industries in terms of total shareholder return.
   The 40-page report contains a number of recommendations for carriers, and suggests that they need to form “more sophisticated alliances” that can reduce costs through joint procurement, back offices, service center and it development.
   “Carriers could achieve cost reductions of 2.5 to 3 percent of the overall cost base of today’s alliances,” says BCG.
   BCG has also issued a report “Forecasting the Future of Marine Fuel” in which it predicts that by 2030 bunker demand in the containerized shipping industry will double.
   It forecasts about a third of that demand will be met with liquefied natural gas, nearly half with heavy fuel oil with emissions cleaned with scrubbers and about 22 percent with conventional fuel, mainly distillates.
   BCG said the stable routes traveled by container shipping companies will make it easier for them to use LNG.