Value of Marine Freight
The global marine freight industry is expected to return to 2014 levels by mid-2019 and reach a value of approximately USD 210 billion by 2021, according to the findings of research firm MarketLine.
“The recovery in the industry is expected to be fueled primarily by a return of global demand as oil prices increase, and while it will take some time for the industry to reset to pre-2015 levels, the shrinking of industry value is short-lived. The players who survived 2015 are likely to have learned from this episode and to incorporate greater efficiency and cost-saving mechanisms in their businesses,” Tom Hawthorn, Analyst for MarketLine, explains.
The industry has struggled in recent years, suffering from a negative compound annual growth rate (CAGR) of 3.3% between 2012 and 2016 amid an increasing oversupply and a collapse of global demand, the firm’s data further indicate.
The economic growth slowed across most of the world over this period, particularly in China, which has recently been the source of much consumer demand. This resulted in a fall in demand for transportation services in general, which forced prices down and led players to invest in their capacity to keep costs low.
“Given how old and well-established the industry is, it is a wonder that major players did not anticipate this situation. Freight prices have been declining for several years, and rather than tightening operations to cut costs, players have decided to invest in capacity increases.
“Of course, costs are now lower per unit than they once were, but it makes little difference as few firms are managing to fill their ships. The important thing is that increase in supply relative to demand has resulted in greater downward pressures on prices, forcing many firms to operate below cost level,” Hawthorn added.
As indicated, this is evident in the example of Hanjin Shipping, which was officially declared bankrupt on February 16, 2017. The complete lack of funds in the company meant that the freight of many businesses and individuals was stuck out at sea for weeks in some cases.
“This has further eroded confidence in the industry and is likely to slow down its recovery somewhat,” he added.