Had anyone ever predicted a year ago that the oil price would be at the level it is today? And that the vessel chartering rate would plummet to an almost historical low? Both elements were heavy burdens for the container shipping industry after the world economy recovered from the financial tsunami in 2009 until the third quarter of 2014, at which point the oil price began to plunge. The majority of carriers were able to boost operation margins in 2014 by virtue of the lowering fuel cost and, meanwhile, strengthened their outlook with confidence to expect a better year in 2015.
Indeed, carriers continue to gain profits in the first half of 2015 despite the overtonnage problem that co-exists on almost all trading routes. Given both weakening fuel prices and faltering ship charter hire, the cost to add a new route never has become so easy a thing for carriers who long for bigger market shares without thinking twice if such a bravery action would further worsen the supply-demand plight caused by more deliveries of mega-ships. Not surprisingly, freight rates soon dropped to nearly record low, according to SCFI weekly publications. More carriers have reported disappointing third-quarter operating results. Some of them even eroded their first-half profit and turned year-to-date performance results from black to red. Low oil prices and charter hire do not seem to fuel profitability for carriers at this juncture, though by right it should.
Why are carriers grounded in the operational dilemma? Will more idling tonnage and recent merger and acquisition talks among few conglomerates help to alleviate or reverse the situation? It requires serious contemplation from industrial wisdoms and leaders who are of the power to make decisions.
P.T. Chen, Chairman, Wan Hai Lines