Earlier last week, Maersk CEO expects overcapacity that will haunt this industry and doesn’t expect recovery for the next three years. Overcapacity has already been going and will linger on for this year and beyond within this industry.
One of the busiest lanes in the world – from Asia to Northern Europe has been exposed to the volatile reality of the market of overcapacity. The rates from Asia to Northern Europe fell to 32.5 % last week along. On the same time, container freight rates dropped by 25 % to the Mediterranean, about 7% to the US West Coast and about 2% to the US East Coast ports by far the largest percentage since 2008. Even on the emerging market of the megaships and improving technology within the industry, overcapacity is still a problem.
The drop in rates is the result of the brutal price competition which leads to overcapacity.
Maersk and CMA CGM for instance, have increased the rates on the spot market and have succeeded to do so. Maersk reported 62% profit increase on their first quarter net through aggressive cost cutting. With the market condition remaining challenging, Maersk is counting on plan alliance with CMA and MSC to further cut cost, as the so called P3 Alliance controls up to 40% of the container moves from Asia to Europe. The P3 Alliance has won clearance in the US but still waiting for the European and Chinese regulators. With this, Maersk would cut cost by 1 billion annually.
All in all, the question still lies, that these carriers are forced to accept the reality of very low rates due to overcapacity – too many ships not enough goods. With the formation of P3, it can create other competitors to merge or form an alliance which could eventually lead to more balance in supply and demand.