The single biggest challenge facing the ocean shipping industry in 2017 will be to carry out the current strategy of “right sizing” supply and demand for ocean carriers. The much-needed right sizing is imperative to save some carriers from financial disaster and to boost sagging revenue for others that has eroded the profitability over the last several years.
Stage 1 of right sizing begins in earnest in the spring with the formation of three major ocean vessel-sharing agreements covering more than 90 percent of the world’s trade. The new VSAs will reduce costs and cut capacity, a good thing for carriers, resulting in increased profitability.
The unintended result will be vanilla products offering the same services at nearly the same price. For shippers, it means fewer options for carriers, resulting in less competition. Though not very good options, these are necessities in today’s market environment.
Stage 2 has been the ongoing carrier consolidation, which began last year with the merger of Chinese carriers Cosco and China Shipping. Then Korea allowed the demise of Hanjin Shipping. European carriers Hapag-Lloyd and United Arab Shipping Co. planned to merge, and CMA CGM acquired APL. The three Japanese carriers, NYK Line, MOL and “K” Line, will consolidate in 2018.
As of now, this looks like a winning strategy for the ocean carriers in 2017; consumer spending is creeping up, which should generate much-needed demand. Carriers will see an uptick in revenue as ship load factors increase. Unless something unforeseen happens to upset the current plans, carriers could have their best year in a long time.