Blood on the Water: The Dismal Outlook for Ocean Carriers

Too many ships, too much rate discounting, and too many service providers for the market to support: the outlook for ocean carriers is ''pretty bleak indeed.'' Those are the words of Foster Finley, managing director of AlixPartners, who joins us on this episode to discuss the consultancy's new study on the state of the oceangoing container trades. Its conclusion: Carriers' financial state ''will likely worsen in 2016, and the only thing apt to cure the industry's malaise is further consolidation.'' Years of emphasizing market share over profitability, coupled with a relentless increase in vessel size, are taking their toll on carriers. The argument that bigger ships slash operating costs only holds water if supply and demand are in rough balance, and carriers can exercise some measure of discipline in their ratemaking. Neither of those requirements is in evidence today. Rates are far below what carriers need to break even, let alone make back their cost of capital, and overcapacity persists. How did they get into this state of affairs, and what will it take to right the sinking ship?