The outlook for the global container shipping industry is “grim,” as carriers’ finances continue to be severely strained and shareholder value erodes, according to Drewry Maritime Equity Research analysis that focused on Asian container liner finances.
The report said that industry players, particularly Orient Overseas International (Limited), Neptune Orient Lines and China Shipping Container Lines, need to “get their house in order” before their financial situations worsen. According to Drewry, total industry debt has more than doubled in the past five years to $100 billion.
“Even as the market awaits the fate of [July 1] Asia-Europe [general rate increases], the sheer collapse in Asia-Europe freight rates in the past two months shows how fickle the industry's demand supply balance remains,” said Rahul Kapoor, senior analyst at Drewry Maritime Equity Research, in a written statement. “Short term, industry profitability has become highly volatile, driven not only by underlying supply demand dynamics, but increasingly by carriers’ actions with respect to short-term capacity management.”
“With no likelihood of an imminent demand surge, the only way to minimize losses is to address effective capacity immediately, or else any hope of full-year profitability can be written off after a very weak second quarter,” Kapoor added.
Of the three Asian carriers discussed in its initial coverage of the sector, Drewry recommended OOIL as the best investment, as the company remains one of the few profitable carriers in the industry. It added that NOL’s turnaround is “unlikely” before 2014 and investment in CSCL is “risky.”