The coming year presents a perfect storm of economic, political and social pressures to keep ocean transportation rates at all-time lows, thus creating continued losses, increased capacity and looming consolidation for ocean vessel operating common carriers.
A strong U.S. dollar continues to dampen a manufacturing comeback for U.S. exports. The hope of moving containers overseas to the once more profitable head-haul is losing its luster as import rates continue to decline. Imports struggle from overcapacity, a result of an onslaught of larger ships coming into the market in the recent past; imports have their own pressure on sustaining profitable rate levels. This is no more apparent than in the largest U.S. trade, trans-Pacific to the U.S. That trade and others are being squeezed from both ends by overcapacity and the lack of export paying cargo.
The scheduled opening of the expanded Panama Canal in early 2016 will certainly flood the number of container slots to the U.S. East Coast and Gulf, placing further downward pressure on the rate levels. Coupled with the fact that this is a presidential election year and traditionally little if any relief is forthcoming from Congress, we cannot expect any assistance.
Ocean carriers will be looking toward consolidation as a means to cope with these tough economic times. After the Latin America consolidation of CSAV and CCNI in 2015, China’s Cosco and China Shipping are moving to consolidate. Will the Japanese and Korean carriers be far behind?
Consolidation will lead to a less competitive environment for shippers. But too much competition is what got carriers into this fix in the first place. We can only hope for a quick and sustained turnaround in compensatory rate levels to save our industry from any further deterioration.