Dive Brief:
- Analysts at Drewry Shipping Consultants believe that strong cargo growth, powered by robust retail restocking, will lead to a likely 4% increase in global demand growth this year, with a capacity increase of approximately 3%, The Loadstar reported Tuesday.
- The contraction in supply and demand means that profitability will certainly return in 2017. Rate hikes are estimated to reach 16%, resulting in an industry profit of $5 billion dollars.
- Mergers and acquisitions have changed everything, with the global industry now relying on 11 carriers instead of 20. Long- and short-term contracts plus reliance on spot market rates among shippers are no longer wise, Drewry added.
Dive Insight:
Carriers have been predicting an industry rebound for months; at last, it seems accurate. In May, the same month A.P. Moller-Maersk CFO Jakob Stausholm declared the worst of the downturn had passed, ports on both U.S. coasts enjoyed their third consecutive month of growth in loaded imports.
Industry analysts other than Drewry also foresee a turn for the better. In a May research note, Moody's pegged the shipping industry's outlook as stable, stating, “supply growth will exceed demand growth by less than 2%, or within our parameter for a stable view. Freight rates in these two segments will also gradually increase.”
Indeed, the signs of a profitable year are lining up. Industry consolidation should see greater synergies in operations; more idled and scrapped ships should decrease the supply-demand gap, helping to raise rates; and a peak season without disruptions will help restore shippers' faith in the industry. Stability is a welcome change for shippers, although it will come at a price.
