Extensive Fleet Idling and Work Force Reductions – Ocean Freight Industry Prepares for Difficult Growth Period: GEP Category Forecast
Growth of the ocean freight segment is strongly related to the global economic growth. The slower global economic growth rate of 2015 has affected ocean freight. The Baltic Dry Index hovering around historic lows since mid-November, indicates slower demand for commodities and hence, the weak growth trend in ocean freight is expected to continue in 2016.
Lower Freight Volumes
The excess capacity and lower price of crude oil is expected to persist till the end of 2016, causing the container shipping industry to prepare itself for a year of lower freight volume, utilization and idling of fleet. In terms of lanes, as compared with trans-Atlantic lanes and lanes in and out of Africa and Pacific, the Europe-Asia lane is expected to witness very weak growth. The demand arising out of China will be impeded by China’s slow growth.
Region Specific Dominance
Among alliances, 2M would continue its dominance in the Europe-Asia lane. CKYHE would be a leading player in the trans-Pacific lane. The recent CMA CGM’s acquisition of Neptune Oriented Lines (APL) is expected to increase the competition at the top, reducing the gap between CMA CGM and the market leader Maersk to about two percent in terms of market share.
Cutting Costs to Stay Afloat
Ocean liner companies are looking at various options to cut costs and stay afloat – though they have limited room to reduce the operational expenditure other than fleet idling and work force reductions. Leading liner company, Maersk has announced a reduction of nearly 16 percent of its workforce during 2016.
Beyond just considering the rates, supply chain planners would also need to factor in longer transit times and timely delivery of cargo shipments. Large buyers would focus on engaging with the right service partner to balance their supply chain needs. Overall, with lower rates and weak growth in demand, the outlook for liners in 2016 is grim. However, the rates are expected to pick up in the latter half of 2016. For more trends and outlook on key categories and commodities, download your complimentary copy of the GEP Procurement Outlook Report 2016.