The world's largest third party logistics providers, C.H. Robinson Worldwide (NASDAQ: CHRW), underscored the depth of the slump in the first quarter, with a 7% and 12% drop in sales and profit, declaring conditions very much due to the decline in fuel prices, as well as the decline in the pricing of most of the company’s services.
In order to reduce competition and cut costs amid declines in financial results for most shippers worldwide, the sector is now scaling back fleets and turning to consolidation. For instance, in February 2016, stated-owned rival companies China Ocean Shipping and China Shipping Group merged and created China Cosco Shipping Corporation (COSCOCS), which will control one of the world's largest fleets of dry bulk vessels, container ships and oil tankers.
French shipping company CMA CGM SA in December 2015 bought Singapore’s Neptune Orient Lines for approximately US$$2.4 billion in cash. The deal is expected to bolster its presence in the Pacific Ocean trade routes and provide some consolidation among the world’s beleaguered container-shipping fleet.
Having been faced with ever tougher conditions, Hanjin Shipping (KRX: 117930) and Hyundai Merchant Marine (KRX: 011200) are dumping their assets in a bit to stay away from joining a growing list of shippers that have gone bust in the past several years. Heavily indebted Goldenport Holdings has been forced to sell off its shipping firm and sell off six of its eight vessels for as little as US$1 a piece as the global shipping crisis takes its toll. The company also delisted from the London Stock Exchange — last trading day on May 23 — after its debt escalated higher than the value of its ships.
An analysis by Mergent suggests shipping markets are deteriorating further, with the plunge in new container vessel orders likely to continue. China’s economic slowdown means that new ships are underutilized, with reduced Chinese demand for commodities such as coal, grains and ore badly affecting the world’s dry bulk shipping market.
Further expected container shipping line losses throughout 2016 — exacerbated by low prevailing spot and contract freight rates — could lead to a major trigger point later in the year. This will happen either through radical capacity management at the trade route level and/or a much more sensible and logical approach to commercial pricing. Global rate levels are no longer sustainable and with the lines’ General Rates Increase (GRI) mechanism soon to be defunct on European trades due to new EU regulations about to be implemented, carriers will need to find new tools.
Container shipping lines expect losses and global freight rates are likely to deteriorate further in 2016, although carriers will not be able to reduce costs at the same pace given that the main advantages of lower fuel prices have already been realized. While global handling is forecast to grow by 2.1% in 2016, things could become ugly in the second half if current commercial trends continue, and there are fears of a major meltdown. #MergentInc #industryreports #shipping #maritime #transportation
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