THE global container shipping industry may lose up to US$10 billion this year, warns Matson Line CEO Matt Cox, who paints a gloomy picture of the industry's future.
"The overall market is in a very tough spot," said Mr Cox in American Shipper. "This is the worst market I have seen in my entire 30-year career, and perhaps it goes further back than that. So we're in a very nasty down cycle."
He said several months ago a research service forecast international ocean carriers as a group would lose "something like $5 billion to $6 billion this year," noting that freight rates have slid further since then.
"And if they were to reforecast it, it wouldn't surprise me to see $10 billion to $12 billion of losses for the industry," said Mr Cox in a conference call with analysts.
In the transpacific trade between Asia and North America, Mr Cox said some carriers are quoting rates that are below variable operating costs.
The company expects its full year 2016 ocean transportation operating income to be 15 to 20 per cent lower than the $187.8 million achieved in 2015.
SeaIntel Maritime Analysis CEO Lars Jensen said the drop in oil prices has made operating faster services attractive because carriers can, in the transpacific, for example, operate with five instead of six ships and eliminate the cost of a ship.
"That calculation makes sense if you can get rid of ship number six," he said. "But in this environment, unless you have these ships on charter and they happen to expire, you can't. That is probably why we have not seen substantial increases in speed on the main services."
Mr Cox said if he used the same numbers from when Matson began the CLX2 service in South China and applied today's freight rates, "these expedited services, which are primarily one haul and don't benefit from the backhaul that we have, are probably losing, just these strings, $50 million to $60 million a year individually for the five-ship service."
Mr Jensen added: "I can understand the frustration, particularly from a niche carrier like Matson that has been very successful for several years in running a fast, reliable service," he said. "Now if the other main carriers speed up, that undermines part of the niche value proposition it has."
"With the widening of the Panama Canal you will get even more 4,000- to 5,000-TEU ships available at very low cost," said Mr Jensen.
"So there is at least a significant risk over the coming year that you may see opportunistic companies start some of these services in the transpacific knowing full well that the market is absolutely horrible," he said.
"But on the other hand if you can get extremely cheap tonnage, you might have a viable business model either because you have even lower running costs than the established players or because you say, 'I don't mind losing money moving containers as long as I can hold on to cheap assets and cash in once the market turns and my assets appreciate in value.'"
Source : HKSG.