Drip, drip, drip, like slow-water torture, ocean carriers continue to increase the capacity of global container ships. The influx of container capacity is reaching new highs as the order book for new ships includes 22,000-TEU ships to replace the older 18,000-TEU ships that replaced the 14,000-TEU vessels, and so on. Cargo demand has increased over the past several years, but not enough to keep up or exceed capacity.
This onslaught of capacity has reduced the price of moving container cargo to all-time lows, partly because of economies of scale, lower slot charter costs, and supply-demand imbalance. The pressure on ocean carriers operating smaller capacity ships to meet the lower sales revenue is proving too much to generate a profit. Part of the rush to bigger ships is the necessity for survival. The industry anticipates an increase in demand in 2018 to close the gap in the supply-demand imbalance.
With new ships coming on line during the next 18 months, it is hard to see that gap closing significantly and in time to breathe life into the profit and loss statements for many carriers. Over the past several years, we have seen consolidation with larger carriers gobbling up smaller companies. The next year and beyond, the industry will see mega-consolidations of the bigger carriers aligning closer to survive.
The airlines had a similar consolidation during their deregulation period in the late 1970s, reducing to three mega-airlines. The ocean carriers can see the same path to three major consortiums or even three surviving carriers.
We have since seen a rebirth in the number of airlines, and ocean carriers cannot be far behind. Let’s hope we don’t see the influx of bigger 26,000-TEU ships any time soon.