Drewry: Bunker Prices Are "Propping Up" Box Lines, Anticipates $5 billion-Plus Losses in 2016

Losses will exceed $5 billion in the container shipping sector in 2016, says Drewry

Freight rate reductions will escalate and losses will exceed $5 billion in the container shipping sector in 2016 due to the further widening of the supply and demand imbalance, Drewry says in its latest Container Forecaster report.

Moreover, Neil Dekker, director of container research for Drewry, says that only low bunker rates have prevented the sector from reliving its performance in 2009, when 1.3 million twenty-foot equivalent units (teu) were removed from a considerably smaller fleet than exists today.

"The mass scale lay ups were triggered by the fact that lines ran out of cash; the industry is not there yet, as some lines are still making a profit and the very low fuel prices are propping them up," said Dekker.

"But a further two or three quarters of declining financial profitability may trigger a notable rise in the idle fleet as we enter the second half of 2016."

Citing container shipping freight rate declines of 9 percent in 2015, Drewry predicts that carrier unit revenues will decline further in the New Year, but at a slightly slower pace; it also believes the recent recovery in spot rates "will prove to be short-lived."

As Ship & Bunker reported earlier this week, rates for Asia to Northern Europe routes jumped 115 percent during the week ending last Friday.

In predicting industry losses to exceed $5 billion in 2016, Drewry says that more worrying than low bunker prices dragging down fright rates, is the fact that freight rates are falling faster than carriers are able to cut costs.

"More needs to be done by the industry to bring about any kind of stability; proposed or forthcoming industry consolidation may well reduce the number of big market players and improve individual company efficiency, but this will not reduce industry vessel capacity in any way," says Drewry.

"Decisions need to be taken by lines to remove more vessels and re-structure more trade lanes with new operational agreements."

Drewry in November said low bunker prices were the only thing preventing huge losses across the box shipping sector, and that Maersk Line's decision to lay up one of its larger Triple-E containerships should be a wake-up call to other carriers.