It’s been less than a month since the announcement of shipping giant Hanjin’s bankruptcy and the shipping industry continues to struggle with pressures coming from a variety of sources in challenging global financial times.
The main factors contributing to this situation are an overall downturn in trade as fallout from the global financial crisis and a bloated global container shipping fleet.
- Repercussions of the financial crisis are still manifesting. Economic growth is weak overall. One of the responses to this is for multinational companies to preferentially locate manufacturing operations in their destination markets, thereby reducing demand for overseas shipping between factories and markets.
- Shipping companies went on a significant ordering binge over the past few years, adding more and larger vessels to their fleets. The resulting overcapacity has led to greatly reduced rates on shipping and much lower profits for firms. In some cases, the cost of shipping a container has been cut in half over the past two years.
In response to these pressures, shipping companies are looking to a few different solutions.
- Amalgamate: A favoured cost-cutting strategy of late has been to form alliances. Three groups of shipping firms have joined forces since January 2015 and these three mega-companies now account for three-quarters of the global shipping market.
- Diversify: Some of the big shipping companies may find opportunities to diversify into a specific market niche or – in instances where parent companies also operate in another industry altogether – to pursue different options to stay profitable while shipping business are low.
- Go high-tech: Companies are creating “smart” ships that use technology to track containers, pack and unpack them more efficiently, and ease communication between ships and ports.
- Reduce the shipping fleet: Sadly, it’s quite likely that a number of the current ships – many of them only a few years old – will be scrapped because keeping them on the water simply isn’t profitable.
The ultimate answer to the current crisis affecting the shipping industry will likely involve a combination of all these measures. Only time will tell which firms survive.
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Information provided by: Freight Forwarding Dept. - Cole International