Before, you can measure confidence in the shipping-container industry by the size of the carrier’s orders, as well as their increasing scale. Today, the massive mega-ships that are serving the world’s most significant trade routes look like monuments to serve-assertive corporate planning, as well as projections that are built out of hopes instead of reality.
From slowing down of global trade, the rising prices of fuel, to capacity’s dramatically increase because of the demand, shipping-container companies and operators are facing new challenges for the next few years. Because of this, it hurts the prospects who are still recovering from almost a decade of unstable business. The good news is, the shipping industry is starting to move towards stability, thanks to increased demand in their services.
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Shipments of boxes full of electronics, clothing, manufacturing parts, and different kinds of consumer goods, both dry and wet, traveling these trade routes, are the backbone of international trade. But the cost of moving these products could go up dramatically because of regulations calling for an honest and more expensive cargo ship fuel that will enter the market in the next few years.
The estimate is that shipping companies will try to pass on around $10 billion per year to cargo owners, in combined additional operating expenses from the new fuel requirements, but these companies are almost sure that they need to absorb some of the costs to keep their clients happy and on board.
Container ships are moving products as diverse as food, clothes, electronic devices and parts, furniture or heavy-industry parts. In the year before the financial meltdown of 2008, this industry is fueling the globalization. The demand for ocean trade dramatically increases as much as 8% to 10% annually, and operators are spending billions and billions of dollars to buy more ships.
It created loads of excess weight, and because of the current rate of the deliveries of brand-new ships, it will take at least two to three years to absorb. It also means that aside from higher fuel expenses, the freight rates are most likely will continue to stay below the break-even level across most of the biggest and essential ocean trade routes.
Because of China’s economy starting to slow down and the shipments taking a considerable hit from the looming trade wars between Beijing and Washington, operators and business owners are already cutting their yearly forecasts. We are already seeing the global economic growth starting to go down.
We see weakness, especially in Europe and China, and we are expecting that the container demand growth nosedive to 1% to 3% last year and 3.7% to 3.8% for the next few years. According to one of the most respectable logistics companies based in Copenhagen, Denmark, Maersk, 2019 will be facing a lot of uncertainties because of all the risks of restrictions on global trade.
Not only that, it added that new sets of regulations in the International Maritime Organization when it comes to cutting sulfur emissions from cargo ships would bring a dramatic increase in the fuel price. According to experts, they expect the International Maritime Organization rules and regulations, which will go into effect at the start of next year, to improve the cargo ship fuel cost by at least one-third.
According to a report, equity analyst trimmed the bank’s target for Maersk shares, based on the company’s cautious outlook for this fiscal year. The company is expecting Maersk to recover the $2 billion in fuel costs, but the irrational behavior with the price competition will remain the most critical risk factor and could trigger another wave of company consolidation, as well as a shakeout among smaller financially distressed and loss-making Asian carriers.
The increase in fuel price is a significant factor, and there will be an additional charge on freight rates, according to the CEO of Ocean Network Express, Jeremy Nixon, during his recent Wall Street Journal interview. Shipping companies are trying to pass the fuel charges to their customers, but they are not doing it the right way.
Shipping companies are at a very critical point in the year when it comes to freight prices, with talks on yearly freight contracts now underway with the company’s biggest clients, including retail giants Walmart, Target, Amazon and Home Depot.
According to a report from Alix Partners LLP, a consulting firm, ships doing the Asia-Europe route will need to increase their shipping rates by at least 40%, and for the trans-Pacific route, a 33% shipping rate increase. The uncertainty when it comes to the availability of cleaner fuels will make the price estimate this year and the next few years a little bit of a guessing game.
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It turned shipping markets, transportation markets into some casino. The continuing problems between the United States and China caused the shipping volume to dramatically increase in the middle of 2018, as companies starting to pull orders forward and get ahead of the impending tariffs imposed by the United States.
With the threat of more tariffs coming, estimating shipping volumes and orders this year is all but a guessing game. We do not believe that a deal between the United States and China will be the last thing that we will hear when it comes to trade tensions.
There is clearly an outstanding deal between the United States and Europe. A continuing imbalance between shipping demand and supply will only add to the uncertainty. Shipping companies are struggling to keep their ships full to make up with the huge capital outlays, but the effort is crashing against big supply chains.
Cargo companies are starting to cut weekly services to get as many cargoes as possible on their ship; it means fewer delays in deliveries that makes customers angry and fewer port calls. According to Sea Intelligence Consulting based in Copenhagen, Denmark, the A380 superjumbo will only work in specific corridors; otherwise, it is too big. The Airbus SE is starting to wind down their disappointing A380 program.
But the global shipping-container lines have stuck with its cargo shipping program, and only a massive rebound in the worldwide trade will turn the business around.
Mar 04, 2015 0
Oct 09, 2019 0