Maersk CEO Says Rates to rise as Container Sector Cuts Capacity-End of LOW OCEAN RATES?
In a report by Hellenic News today. Maersk CEO Soren Skou feels that the Container Freight Sector will start increasing freight rates. As over-capacity in the container market starts shrinking, freight rates can rise. This signals the end of low ocean rates.
The Container Ship industry has been scrapping ships older than 20 years. It is idling capacity at about 6% to 7%. This is done to lower supply of space and to manage costs.
If you link his statement to ideas of supply and demand. The lowering of supply (Shipping Capacity) in theory should increase prices.
Does this mean you will see increasing Container Freight charges in the near future?
Some facts suggest that will not happen so soon.
European Economic Data suggests weakness
Current EU Economic Data shows that GDP growth for 2016 will be averaging 1.36 %. Labor Unemployment still unchanged at 10.6% and a budget balance of -1.6%.
Europe is still recovering from the massive downturn it experienced. One entire sector of the world economy is still weak with many challenges ahead.
Exports from and imports into Europe will remain weak. Demand for more shipments into Europe may not happen quickly.
The World Economy
Looking at the World Economy, IMF reports that world economic GDP is expected to be at about 3.1 % and only recovering to 3.6% perhaps only in 2017.
Trade which drives demand for shipping is still struggling and the world economy is not yet in the heydays before 2008.
These 2 important information suggests a different picture from Maersk’s statement.
Reason for the Shipping Industry’s Challenges
Demand for shipping remains low because Families and consumers are spending less. Everyone is focusing on surviving.
This is due to increased uncertainty, and fear of how the economy is progressing. The effect is lowered demand and trade. As a result, shipping lines had to make tough decisions on controlling costs and to cut it quickly.
One effect you would have felt are longer sailing times.
The most recent case of Hanjin going bankrupt is a clear example. Its effects are still felt by buyers of goods and by the workers who supported that shipping line.
With the holiday season and 2017 on us. Exporters and importers must plan shipments better to deal with sailing delays and issues.
Is this picture of Gloom and Doom never–ending?
Ocean Alliance Sets out Network
There is good news! Extended sailing time and service problems are not the norm!
Improvements are happening.
Ocean Alliance today concluded an understanding.today concluded an understanding.
It will increase services and reliability for all the lanes it serves.
Despite the challenging scenario. Ship alliances have taken steps to take care of the most important person in the shipping world. The customer.
The benefits Ocean Alliance is offering by End November 2016 are:
- Shorter Transit time for all its lanes.
- Better predictability of sailing schedules.
- Most likely no new increase in freight charges.
Such a move to improve transit times. Predictable shipping schedules and rates staying stable is exactly what you need.
Though final details are not out. Ocean alliance has publised its goals and objectives for immediate improvement and deployment.
What you can expect
- The outlook in the container shipping industry seems quite clear. Consolidation and improvement of existing shipping networks will be the way forward.
- Even with the cutting of over capacity. World Trade which drives demand for shipping is weak.
- You can expect freight rates to REMAIN the same. Transit time, service reliability (such as predictability and reliability) will improve.
This is great news because shipping service improvement will increase trust in the sector.