Dive Brief:
- Current demand for container shipping remains bleak, causing consulting firm Alix Partners to predict a tough year ahead, American Shipper reported Tuesday. While spot rates grew temporarily due to rare events, the real test lies in carriers' ability to secure higher contract rates in 2017.
- Even rapid consolidation is not enough to save the struggling industry, according to Alix Partners' annual container shipping study. Carriers must strive to further reduce costs in order to rebalance supply and demand, and to therefore avoid the abundance of vessels allowing for price undercuts among competitors.
- Meanwhile, shippers should seek diversity in carriers. While lines assure another bankrutpcy will not occur, the industry's average Altman Z-score — which measures potential bankruptcy metrics for the industry — remains at 0.9, its lowest rate since 2010.
Dive Insight:
Though the outlook for 2017 looks bleak, transport carriers appear to be attempting every measure possible to contain costs and hunker down for further challenges. In addition to rapid consolidation in the form of mergers, acquisitions, slot-sharing partnerships and new alliances, carriers are scrapping more vessels and continually innovating to improve utilization.
Financially, too, carriers are taking steps to improve their balance sheet and reduce debt. In addition to joining THE Alliance, the Yang Ming Line has also sold $54 million worth of stock in a move to increase its liquidity, while HMM has worked to restructure its abundance of debt and improve its Moody's rating from default to stable.
Though it's tough to predict which lines will merely survive and which will thrive, it appears that most of the major lines are making moves to see themselves through the coming year. With profits down across the board — Maersk alone suffered a 43% decline in 2016 third quarter — belt-tightening and innovation have become the norm rather than the exception.
