For a while in the 2000s, being in the ocean container shipping business was a pretty good place to be.
Then came the Great Recession, a substantial slowdown in global trade volumes, and tough times for most carriers, with many suffering deep losses ever since.
2013, it turns out, was a modestly positive year compared to others recently for the carriers - but that is indeed faint praise. The combined operating profit of the top 19 carriers tracked by the analysts at Alphaliner was at least in the black last year, at $247 million.
But that of course is a small number compared to the billions in revenue the carriers achieved. In addition, just 6 of the 19 carriers enjoyed profitable operations, as shown in the graphic below from the analysts Alphaliner.
In addition, nearly all of that aggregate operating profit came from the industry's two largest carriers, Maersk Line and CMA CGM, which Alphaliner says both benefit from having substantial North-South routes, which have better margins than East-West sailings.
But it's not as if the 5.8% and 4.8% operating margins Maersk and CMA CGA realized in 2013 are anything to write home about. Those profits are before financing and other non-operating costs, which will send full net income even lower if not into the red.
When the best in the industry have operating margins roughly equivalent to just the average of the US's beleaguered less-than-truckload carrier segment, times are not good.
Not surprisingly, this dismal financial picture is forcing changes in the industry, primarily in the form of operational consortia, in which now three main groups of carriers are pooling capacity and sailings. Outright acquisitions (e.g., Hapag-Lloyd’s planned acquisition of Chili-based CSAV) are also occuring and likely to continue.
These consortia are changing the basic structure of the industry. As shown in the graphic below from Drewry, the three main alliances will soon control about 73% of capacity from Asia to the US West Coast, and similary dominate other routes.
Will that in the end allow more carriers to finally start making some money? Will the alliances cause real problems to container shippers? Can the capacity pooling allow a win-win for both carriers and shippers?
All unknown for now, of course - but we will keep you posted as this industry evolves.
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