Thursday, November 27, 2014


 Supply-Demand Gap will Still be 21% by 2017, McKinsey Predicts, in Good News for Shippers

By SCDigest Editorial Staff


We were a little surprised to see a piece from the consultants at McKinsey with recommendations for how ocean container shipping lines might heal themselves, after the carriers have had a very hard time making profits since the global downturn in 2008.
There are a variety of woes making it tough for container shippers, starting with significant over-capacity, as global trade volumes slow and most carriers continue to bring more new megaships into service.

In its analysis, McKinsey offers the graphic below, which shows the industry as a whole will continue to be plagued by over-capacity for many years to come, with the current 25% or so excess capacity only shrinking to 21% by 2017.


The Supply-Demand Balance in Container Shipping will Continue to be in Shippers' Favor

 

Source: McKinsey

Still, McKinsey does predict some recovery in shipping rates, as can be seen in the right hand side of the chart above, for reasons that aren't clear, given that over-capacity will continue to be the rule for at least several more years.

However, even if McKinsey is correct, that would still put rates below pre-2008 levels and even below the single year of real recovery in the sector seen in 2010.

Of course, low rates may be bad financial news for carriers but good news for shippers, who continue to benefit from the carriers' over-capacity woes.

McKinsey recommends carriers get better at calculating true marginal cost to run ships, saying many container lines underestimate those costs, leading to rates that are too low to even break even.

McKinsey adds that "In effect, companies [container lines] are passing on all of the cost savings they have achieved in recent years to customers."


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