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Container Shipping Recovery Achieved Through Capacity Cuts

June 21, 2017 12:05 am Published by

Since the beginning of the year 2017, container shipping companies have benefited from a modest increase in freight rates. Albeit this is positive news for the industry, Fitch Ratings says a sustainable recovery in the container market will only be achieved by reaching a viable supply/demand balance, primarily through capacity cuts.

In 2016, container transport volumes outstripped capacity growth for the first time since 2010-2011. This increase was helped by a higher rate of vessel scrapping and a delay in deliveries. A moderate recovery in freight rates, if maintained throughout the year, should support an improvement in container shipping companies’ credit metrics in 2017; but the performance between companies will vary significantly.

While cost-cutting can provide financial support, market equilibrium is needed for a sustainable improvement in financials. Analysts believe that M&A deals, rather than alliances, are the most likely route to restoring the supply/demand balance in container shipping. This trend is already underway, with the top-five container shipping companies consolidating their market position through mergers and acquisitions. Their market share is likely to be approximately 57 percent in 2018, up from 45 percent in 2016.

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