• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • Login
  • Subscribe
  • Logout
  • My Profile
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • BLOG
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Calming the Bubble in Deep-Sea Cargo Markets

Calming the Bubble in Deep-Sea Cargo Markets

031517_CalmingtheBubblein_SliderImage.gif
March 15, 2017
SupplyChainBrain

IBISWorld estimates that deep sea cargo transportation service prices have been falling at an average annual rate of 1.5 percent from 2013 to 2016 due to overcapacity and falling fuel prices. Low shipping prices have hindered many shippers’ profitability to such an extent that earlier this year, the world’s seventh-largest container carrier, Hanjin Shipping Company, filed for bankruptcy protection. Hanjin is not the only company that is suffering, and despite numerous attempts to alleviate the pressure, troubles remain. Continued pressure on stress factors like financial risk, uncertain operating costs and waning demand for services will cause a shipping bubble to grow and burst, triggering devastating effects on downstream transportation markets. Continued distress will cause a shipping bubble to grow and burst, triggering devastating effects on downstream transportation markets.

The primary factor harming container shippers is overcapacity in relation to market demand. In 2016, IBISWorld estimated that were are about 5,000 container shipping vessels worldwide, with a combined capacity of nearly 17 million twenty-foot equivalent units (TEUs). Prior to the 2008 recession, healthy international trading encouraged shippers to invest in new, larger ships to boost their market share. However, demand for international trade plummeted with the recession and has barely recovered since. In 2016, weak economic growth, particularly from emerging economies like China and India, resulted in sluggish demand for waterborne shipping services. Although suppliers have dropped their prices significantly to remain competitive, the supply gap is still wide enough that market rates should be far below what shippers require to cover their costs. In an attempt to alleviate damaging competitive pressures, several shipping companies have signed cooperative agreements, including pacts such as the 2M agreement and the G6 alliance. Under these partnerships, suppliers share both vessels and cargo with one another, ensuring that no single company will be forced to absorb lost revenue on a shipment that cannot be filled to capacity. While these agreements have helped to narrow the gap between supply and demand in the market, demand for overseas shipping services still lags behind what would be necessary to ease suppliers’ financial burdens.

Furthermore, deep sea cargo shippers, like many other transportation service providers, have suffered as a result of low oil prices. IBISWorld estimates that bunker fuel prices have crashed alongside crude oil prices, falling at an estimated rate of 25.1 percent per year on average since 2013. While this has cut suppliers’ annual fuel costs substantially, shipping rates have fallen in lockstep, leaving suppliers unable to pad their slim profit margins. While rebounding crude oil prices in the coming years will pressure shippers to increase service prices, demand is unlikely to rise in lockstep, intensifying financial hardship across the market.

The Outlook

Two factors have the potential to decimate the shipping market. First, if crude oil prices jump unexpectedly, suppliers will be forced to raise rates overnight, dampening demand for shipping services and leaving many shippers without financial backing to support their considerable expenses. Second, if international trading doesn’t recover, suppliers may find themselves in this position anyway. Shipping companies must retire some of their assets to reduce market supply, or additional bankruptcies may harm downstream transportation companies and shipping buyers alike.

RELATED CONTENT

RELATED VIDEOS

Global Supply Chain Management Transportation Management Logistics Global Logistics Logistics Outsourcing Industrial Manufacturing Ocean Transportation Transportation & Distribution
KEYWORDS Global Logistics Global Supply Chain Management Industrial Manufacturing Logistics Logistics Outsourcing Ocean Transportation Supply Chain Analysis & Consulting Transportation & Distribution Transportation Management
  • Related Articles

    Green Technology Comes to Carriers Plying the Deep Blue Sea: APL Touts Environmental Initiatives

    Sea Freight Mainly Responsible for Overall 3.1 Percent Growth in Freight Forwarding Market

    The Market Continues to View Air, Sea Freight Forwarding Positively

  • Related Events

    How Neiman Marcus Transformed Ticketing for a Faster Time to Market

    The Worker Centric Distribution Center

  • Related Directories

    Kuebix

SupplyChainBrain

100 Great Supply Chain Partners Issue 2009

More from this author

Get regular updates!
Subscribe to our newsletter

Enjoy curated articles directly to your inbox.

Popular Stories

  • 1209_themarketforlogistics

    How an Investment Banker Views the Market for Logistics and Supply-Chain Tech

    Technology
  • 1115_chinarareearthminerals

    Podcast | Can China’s Monopoly on Rare Earth Minerals Be Broken?

    Sourcing/Procurement/SRM
  • 1206_howglobaltradersplan

    Podcast | How Global Traders Can ‘Plan for Crazy’

    Global Trade Management
  • 1210_cultureoffeargripsups

    ‘Culture of Fear’ Grips UPS: Workers Say Injuries Are Underreported

    Logistics
  • 1125_themodernfactory

    The ‘Modern’ Factory Remains a Dream for Many Manufacturers

    Technology

Digital Edition

55746

Subscribe today and receive the latest issue

Start Your Subscription

Case Studies

  • Locus Robotics Helps E-Retailer Deliver During Holiday Peak

  • Manufacturer Slashes Shipping Costs With AI Packaging Solution

  • Apparel Retailer Saves $45 Million With Reverse Logistics Solution

  • QuestaWeb Configures Fragrance Company’s Complex Procedures Into Its Advanced FTZ Software

  • Business Turnaround: Integrated Business Planning as a Management Tool

Visit Our Sponsors

  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • Webinars
  • The Magazine
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • 100 Great Partners Form
  • Resources
    • Newsletters
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us

All content copyright © 2016 - 2018 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing