Experts Say Fixing Shipping’s Capacity Problem Would Take a Lot More Than Hanjin’s Crisis

Even more shipping lines could find themselves in trouble thanks to the huge amount of overcapacity in the industry even as the crisis surrounding Hanjin Shipping has rocked the industry, says CNBC quoting the CEO of a logistics company.

Hanjin ships have been denied access to ports and, in some cases, have been seized after the company, which had around 3 percent of market share in shipping, filed for court receivership at the end of August.

The spiking of the shipping rates is one result of Hanjin’s troubles. According to data from Freightos, an online shipping rate marketplace, through September, there has been a 50 % price in prices for shipments between Asia and the U.S. But the company added that as currently empty container slots are brought into use and prices will fluctuate, this is likely to prove temporary.

According to Philip Damas, director for supply chain advisors at Drewry, companies which were using Hanjin have received charges from some ports in addition to shipping rates rising.

“Some ports have imposed surcharges on exporters and importers who used Hanjin as a carrier and are waiting for their products in the destination port to cover the port costs unpaid by Hanjin. This is also increasing exporters’ costs,” he told CNBC in an email.

Dr. Zvi Schreiber, CEO of Freightos, an online logistics marketplace warns that a glut in the number of ships carrying goods around the world is still an issue even as Hanjin has been a shock to the system.

“There has been a significant overcapacity, which is why rates have been so low and that’s why Hanjin went bankrupt in the first place, but it’s not clear if that’s enough. Hanjin is only 3 percent of world trade and it seems the overcapacity in the industry is more than that. This is just one of the painful steps for the industry correcting its overcapacity, but there may be more,” Schreiber told CNBC on Thursday.

The shipping industry is in dire straits. The value of vessels has dropped and shipping rates have fallen because of overcapacity. Compared to the same month last year, this August, the total number ships being sold for demolition for all ship types had risen 50 percent, shows a market report released last week by market analyst’s VesselsValue.

The overcapacity issue can be solved by economic growth; further collapse; or consolidation, believes Schreiber.

“Perhaps the world economy will get back into growth and catch up with capacity, which would be the best solution for everyone. If there’s economic growth and people are buying more products again, then you can utilise the capacity better,” Schreiber said.

“I’m afraid we’ll see more collapse. There could easily be another bankruptcy or two. I hope not, but that certainly can happen,” he warned.

According to Damas, prices can be supported by likely mergers and consolidation in the shipping industry.

“We expect that the rapid consolidation of the shipping line industry through carrier failures and M&As, the inability of most shipping lines to continue the current price war and the possible avoidance by exporters of financially vulnerable shipping lines will push shipping rates up even after the short-term market shock caused by Hanjin,” he said.

However there can be some negative consequences for consolidation, Schreiber warned.

“If you have consolidation and fewer players, they could find it easier to fix prices and keep them high, which would be good for them, but we don’t want to go back to a situation of cartels and price fixing in the industry,” said Schreiber.

(Adapted from CNBC)


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