The Coming Turbulence in Liner Shipping Industry and the Influences

By Chen Zhi & Jiang Nanchun

On Oct. 23th， MAERSK announced a lower profit outlook for 2015. The downgraded expectation will be 36% less than that of last year. Soon after， MAERSK announced that an 18000 TEU 3E new ship would be laid up. As the industry benchmark and bellwether， MAERSK has declared the severe winter of liner shipping industry is coming from above words and deeds. A maritime financial storm is forming in different ways in liner shipping industry， which will inevitably exert effects on ports and shippers.

The realistic environment for liner shipping industry is low returns， prolonged continuous loss and rising cost. Therefore，long-term viability of shipping enterprises becomes significant. For a long time， the revenue comes from globally growing container volume rather than freight rates.

Now the container volume is declining. In addition，ship carriers unceasingly invest in large ships in spite of continuous loss and over-supply conditions， which caused this industrial unrest.

"Any freight is good" comes from shipping companies invested in large ships to reduce the cost. For decades， their ships have been becoming larger and larger. At present，shipping companies owning large-sized ships all focus on increasing utilization of shipping space. they are trying to stack more containers in every vessel， which will also contribute to higher market shares. Nevertheless， the main way to capture market is reducing freight rates.

All sorts of ship alliances emerged. By this way，companies may reduce their cost； meanwhile problems in customer service are caused. More cancelling and delay have resulted in customer complaints about shipping date integrity and performance reliability.

Ultra-large ships lead to the problem of dealing with the ships that are replaced by them. The replaced ships are generally used into other trade routes in east-west direction to open up new and wider shipping routes. Ladder replacement will bring the problem of surplus capacity to other routes stepwise.

We have three aspects of conjecture based on the data from listed companies. Firstly， which shipping companies will go broke? Secondly， if certain companies have only a few or even no ultra-large ships， will they declare bankrupt?What is the motivation to get these properties? Thirdly，will these broken companies transfer the enough transport capacities to any other potential industries? How soon will all these happen? And who will survive?