Suzhou Cosc Marine Machinery Co., Ltd. holds that although the total number of container‑ship scrappings in 2016 is projected to hit a record 150 vessels, this will not be enough to pull the container‑shipping industry out of its downturn marked by overcapacity, falling demand and slumping freight rates. Meanwhile, weighed down by low freight rates and high costs, container‑shipping carriers will suffer a sharp decline in profitability this year, with the industry’s total loss forecast to reach USD 6‑10 billion. It will be extremely difficult for container‑shipping companies to turn a profit this year.

The industry is expected to post a total loss of up to USD 6‑10 billion. A recent report released by Drewry shows that the fall in container‑shipping freight rates has been worse than anticipated. Hit by depressed freight rates and cost pressures, container carriers will see a substantial drop in earnings, and the sector is projected to incur aggregate losses of USD 6‑10 billion for the year. According to Suzhou Cosc Marine Machinery Co., Ltd., published results to date reveal that container‑shipping freight rates plunged continuously in Q1 2016, with declines exceeding expectations. Nevertheless, cost‑cutting measures implemented by major container carriers have yielded results and offset part of the losses.

Suzhou Cosc Marine Machinery Co., Ltd. states that taking into account a range of extra expenses stemming from container‑ship lay‑ups (and re‑activations), empty‑container movements as well as mergers and acquisitions, rapidly falling container‑shipping freight rates will eventually drop below carriers’ unit costs after cost savings. In addition, a common trend in Q1 was that liner companies recorded double‑digit‑percentage losses in overall revenue owing to shrinking operating profits.

Suzhou Cosc Marine Machinery Co., Ltd. points out that the liner industry generated operating profits of approximately USD 5 billion in 2015, yet carriers could only keep unit costs below revenue for a maximum of one year. Over time, the gap between unit costs and unit revenue kept narrowing. This explains why operating earnings declined quarter‑on‑quarter, until unit costs overtook unit revenue in the fourth quarter of last year.

Suzhou Cosc Marine Machinery Co., Ltd. believes that how operators adjust the gap between unit costs and unit revenue will determine whether they can avoid heavy losses and even return to profitability this year — and the outlook is far from optimistic. In fact, container‑shipping companies have achieved no success in lifting spot freight rates for container vessels. They have only secured temporary rate increases via surcharge adjustments, while rates under service contracts have still seen significant declines. At the same time, bunker fuel prices have climbed steadily since mid‑January, making further unit‑cost reductions difficult. Suzhou Cosc Marine Machinery Co., Ltd. concludes that it will be very challenging for container carriers to make profits this year, as they cannot prevent revenue from falling below costs.