Here’s why ocean freight rates are going to drop:
Efforts to reverse rampant overcapacity in the freight shipping industry have still proved to be ineffective. According to Alphaliner, the three leading carriers – Maersk, MSC, and CMA CGM – have seen their TEU capacity grow by a factor of 17x, 35x and 50x respectively, while the container market has only expanded by 6x. And this expansion in size of fleet is set to continue. According to Alphaliner, the industry’s top five carriers currently have an average of 20% fleet growth on their order books.
It gets worse. By the end of the year, a full 10% of the world’s container shipping capacity will have been taken off of the market, with 500,000 TEUs of capacity scheduled to be scrapped and an additional 1.5 million TEUs of capacity currently idle). Despite these changes, this contraction will still not have reduced supply enough to be more in sync with existing demand.
Even if Hanjin, which operates (operated?) 2.6% of the market’s TEU capacity, is completely removed from the market, there is more than enough available shipping capacity to compensate for the floundering South Korean company’s 547,606 TEU capacity.
This situation has been severely exacerbated by there currently being an incredible four times more idle capacity in the market than last year, driven by more ships – especially super-sized ships – coming into commission. With so much idle capacity, it’s tempting for hardpressed CEOs of pressured carriers to grab the opportunity in Hanjin’s demise.