Low Bunker Prices the Only Thing Preventing Huge Losses for the Teetering Box Shipping Sector: Drewry

The Danish carrier's decision is noteworthy given that it has weathered market fluctuations better than other carriers in the past.

Low bunker prices are the only thing preventing huge losses across the box shipping sector, and Maersk Line's recent decision to lay up one of its larger Triple-E containerships, along with its guidance downgrade late last month, are wake up calls that will increase the likelihood of other carrier lines following suit, according to Drewry. 

"Maersk's downgrade and idling of flagships is a stark reality check for an industry teetering on the edge of a return to heavy losses that has thus far only been avoided because of low fuel costs, and could be the trigger for action that is required to stop the rot," the consultancy company said. 

It added that the struggles of the world's largest carrier line by capacity are all the more noteworthy given the fact that Maersk Line has in the past weathered market fluctuations "far better than others." 

"The Danish carrier's superior economies of scale have helped it to surpass its peers in terms of operating margins (EBIT to revenue) in 24 of the last 26 quarters," Drewry said.

"But now it feels compelled to say that it too is not immune to the worsening general conditions, which could be interpreted as passing the blame, but nonetheless should serve as the wake-up call for the industry to get its house in order."

Drewry notes that freight rates reported by both Maersk Line and OOCL are now close to those seen during the 2009 global financial crisis.

"The difference between 2009 and now is that the cost pressures are working in carriers favour and with fuel prices expected to remain relatively constant we do not expect to see sustained negative cash flows," it said.

Meanwhile, overcapacity in the sector is expected to continue into 2016, with Drewry adding that shipping lines will have to idle larger portions of their fleets.

It says action will also be needed as any savings generated from cost cutting will soon be outstripped by the decline of freight rates. 

Maersk Line's profit guidance downgrade has already begun reverberating throughout the sector. 

Ship & Bunker previously reported that following the announcement, Hapag Lloyd lowered its price offering for a second time in an attempt to win back cooling investors.