AlixPartners: Carriers Need to Shrink Appetite for Newbuilds

Container carriers should curb their “voracious appetite” for new ships and increase scrappage to control the current margin-crushing balance of supply and demand, AlixPartners said in a report.

As explained, new orders slowed and deliveries were deferred during much of 2017. However, the buying spree resumed in September, ensuring the continuation of such balance unless scrappage activity accelerates.

In addition, pricing discipline and operating expense management are opportunities for carriers to improve their performance, AlixPartners believes. The ongoing fleet consolidation and the realignment of ownership have enabled the industry to demonstrate a level of price displine that has been lacking for years. What is more, carriers have to produce the anticipated cost savings from fleet consolidation by making cuts in redundant expenses and modernizing operations.

Despite the fact that the industry modestly improved last year, challenges of rising costs and oversupply remain.

Rates will continue to be squeezed as long as supply continues to outpace demand for containerized services. Total demand will have to meet expectations of a 4 to 5% increase to provide any real opportunity for margin growth, according to AlixPartners.

AlixPartners further said the industry remains to be susceptible to black-swan events ranging from the impacts of shifting geopolitics to cyberattacks.

“Although the global economy started the New Year with broad strength, the potential remains for the development of political crises, for major corrections in the financial markets, and for ongoing dangerous cyberattacks such as the 2017 breach of Maersk Line,” the report reads.