Dive Brief:

• Freight rates fell 17.7% during Q3 due to sustained shipping overcapacity, the growing quantity of idle fleets and competitive pressures caused by alliances, Hapag-Lloyd reported Monday.
• Hapag-Lloyd lost $1.2 billion in revenue due to the decline in freight rates, according to the quarterly report. The company noted that losses are an industry-wide problem, as all but one of the top 15 container shipping companies reported negative operating margins during the first half of the year.
• Long-term prospects for freight rates remain low, as a backlog of post-Panamax ships continues to be fulfilled. Currently commissioned ships already equate to only 17% of the industry's total 20.9 million TEU capacity.

Dive Insight:

Hanjin's bankruptcy, the merger between Japanese lines and the increase of vessel sharing agreements all appear to be tied to a single-event: the expansion of the Panama canal.

The Panama Canal is hardly the only reason for these events, but the expansion rendered the up-to 5,100 TEU Panamax ships essentially antiquated for global trade, driving a spike in demand — or rather, an arms race — for large, "post-Panamax" vessels. A glance at recent events shows just how much these events are related. 

Shipbuilder STX Offshore, for example, went bankrupt due to the incorrect but understandable investment in expansion that was based on the assessment that the spike in demand would last longer than it did. Meanwhile, Hanjin's bankruptcy contributed various now-idle ships to the fold, as the majority of its ships were Panamax vessels.

Idle ships have now reached a record-high 1.6 million TEU, according to Hapag-Lloyd, which in turn contributes to the depressed freight rates. 

Shipping lines now are actively consolidating to remain competitive. The hope for the shipping lines, and the fear for shippers, is that a more consolidated market will allow carriers to cease undercutting each others' rates. In addition, having more vessels allows for greater synergies. While this will cause even higher levels of idle ships, the carriers hope to recover by 2020.

In the meantime, the shipping lines are just hoping to weather the storm.