Overcapacity equals Oversimplification. Some in our industry don’t learn from experience. In 2011, ocean carriers again suffered millions of dollars in financial losses. The reasons for these losses can certainly help forecast 2012: fuel prices and overcapacity.
While control of fuel prices isn’t in our hands, the problem of overcapacity certainly rests with the shipping lines themselves that at the same time have built exceptionally large vessels. It’s understandable these ships have a lower per-slot building cost and operating expense. It’s easier to compete and establish a lower rate policy, which severely impacts the bottom line of other carriers. This is destructive behavior and it will continue in 2012.
Secondly, many of those investing -- bankers and venture capitalists, for example – have no knowledge of our business. Their interest in shipping is for investment purposes solely and this is creating a problematic scenario for the ocean carriers.
The larger carriers will survive this strategy, although it will make leveraging contract season much more difficult as we may experience more capacity reductions. We are seeing, however, the failure of small and medium-sized carriers, many of which no longer can compete and may be wiped out of the market. Although carriers go out of business, however, the vessel capacity remains for someone to use it. It appears sometimes that some carriers pursue a market-share-at-any-cost strategy.
For the sake of fuel economy and environmental upgrades, the ordering of modern ships is a necessity. We must factor this into the demand-supply ratio to ensure we bring stability to our trades. We cannot oversimplify this issue; there has to be a disciplined approach from everyone.