Biggest Stories from The Global Shipping Industry in 2017

Damas Jati - 08/01/2018, 15:25

The 2017, according to Xeneta, is also the beginning of recovery. The freight rate, though was still lower than 2014, but it was much better than the freight of 2016.

Another big event was when short-term rates actually fell below long-term rates for the Asia-Europe trade lanes.
During the year, many shipping lines banded together to form mega alliances, giving them a dominating share of the ocean freight market.
The massive alliance in 2017 was also triggered by the fall of Hanjin Shipping in 2016. This shocking Hanjin bankruptcy had spurred other lines into action to ensure that they stay and work together within the new alliances that came into being from April 2017.

Below are the alliances that came into effect from April 2017: 

    2M + H consisting of Maersk, MSC & Hyundai Merchant Marine with a slot purchase option
    The Ocean Alliance consisting of CMA CGM – OOCL – Cosco – Evergreen
    THE Alliance consisting of Hapag-Lloyd – MOL – K Line – NYK – Yang Ming

The winds of change are already moving things along quickly with the one member from each of these alliances shoring up their positions in terms of additional capacity.

    Maersk’s acquisition of Hamburg Sud was completed,
    Hapag-Lloyd’s acquisition of UASC was completed,
    Cosco acquired OOIL (holding company of OOCL)

Based on this, it is expected that additional capacity, infrastructure, equipment and access to more markets will come on board for these three carriers at least.
The 3 Japanese carriers MOL, K-Line, NYK belonging to THE Alliance decided to merge as ONE (Ocean Network Express) in 2017.
Cosco’s acquisition of OOCL already took it past CMA-CGM to become the world’s 3rd largest container shipping line. Now there are ominous whispers in the air of a possible takeover of PIL by Cosco.
In addition, the 3 Japanese carriers MOL, K-Line, NYK belonging to THE Alliance decided to merge as ONE (Ocean Network Express) in 2017.
Compared to 20 odd container lines present 2-3 years ago, the merger and acquisition will make as few as 5-6 main carriers in the coming decade.
As far as operational efficiencies are concerned, it is highly unlikely that the new alliances can have a better effect. One line cannot provide or show a better operational efficiency (quicker transit, quicker discharge, faster vessel turnaround, etc.) than the other in the same alliance because literally “everyone is in the same boat”.
Although port congestion is not new and not mainly caused by the alliances, it is foreseen that port congestion may continue as more and more mega ships enter the alliance services.
Although on paper, alliances have shown to have increased the volume of service, the practical benefits to shippers remain to be seen. What has been seen however is that the alliances have made operations more opaque and complex while also reducing choices from the customers.
The 3 Japanese carriers MOL, K-Line, NYK belonging to THE Alliance decided to merge as ONE (Ocean Network Express) in 2017.
According to Xeneta, the freight rate in 2017 was much higher than of 2016. The ocean freight market hit rock bottom in 2016. Carriers bled a record amount of money while rates hit historic lows. So, the expectation for 2017 was that there was only one way to go – up.
And indeed, rates have increased. Because of shipping industry consolidation, ocean rates have more than doubled on some lanes. “For example, in June 2016, we found that rates were at $616 for a 40-foot container vessel traveling between China and northern Europe; a year later, the rate was at $1,470,” it said.


What Will 2018 Bring?

According to Xeneta, the shipping business, especially container business in 2018, will be steady. Though, China-North Europe route noted long-term contracts for 2018 below 2017 peak but more than double the lowest average point recorded in 2016.
Further, the macro economy factor will is good news. From an economic perspective, expectations are high for 2018. Outlooks from Goldman Sachs Group Inc. and Barclays Plc predict global growth will reach 4%, with G7 economies expected to beat projections for the first time since 2010. In fact, it’s worth noting that a global growth rate of 4% next year would be the strongest since 2011. Barclay’s economist wrote in a November note that this growth “is not overly reliant on any single geographical region, industry, or source of demand.”
How an expected strong global economy plays out for the ocean freight market is not yet known. Capacity does still remain an issue regardless of IMF’s outlook, and with more expected in 2018, it could likely pressure rates downward depending on the lane. How alliances react needs to be monitored as well and finally, consolidation. “Will it continue?”
“There are still a few politically motivated events that could shape the container industry in the immediate future. Brexit and the fate of EU trade, the country’s maritime industry is hanging in the balance,” Xeneta said.
How the market will react to Brexit is yet to be seen although there is a lot of speculation surrounding the same.
In the Xeneta’s view, if the market holds steady for at least the first quarter of 2018, although the rates are looking lower right now, it may be too short-sighted to say the 2018 market will be unhealthy for carriers. “With many carriers reporting profit and also from the trend we see in our data, we have to put things in perspective and not call it too soon. Let’s see what happens,” it said.
According to the report “Cargo Shipping Market – Global Trends and Forecast to 2021”, the growth in container transport will have the highest growth in cargo shipping trade compared to other types of cargos (Liquid, Dry, General).
After the fiscal year 2018, the report states that the cargo shipping market is projected to reach 12.52 Billion Tons at CAGR of 3.5% from 2016 to 2021 overall with the container market the most promising.
“From our database, we have seen that on certain routes like the China-North Europe route some of the new long-term contract rates for 2018 are lower than peak 2017 rates but much higher than the lowest average in 2016,” said Xeneta.
But on the positive side, it is expected that shipping lines will make a small profit of around $1.5 billion at the end of 2017 with a 5% growth in 2018 predicted meaning that 2018 contracts can be a healthy year for carriers.