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The ocean freight shipping industry is in rough waters. Many analysts believe that some major shipping companies could be ceasing operations in 2013 as many are experiencing costs that are 1.5 to 3 times their revenue.
The shipping sector started it downturn in 2008, since then several companies have gone under, but with 2012 being one of the worst years in a quarter century for dry goods cargo, many more shippers are just barely holding off bank foreclosures.
There has been excess shipping capacity for the last few years and that has driven down shipping prices. The lower volumes at lower prices have had a devastating effect on this industry.
Shippers reacted in 2010 to 2012 by buying super sized cargo ships, to decrease operating cost. Unfortunately this created even more excess capacity.
Carriers are now pushing through rate increases to cope with falling demand. Exporters from Asia to Europe and the Middle East will be seeing sizable increases in freight charges starting in March and going into the summer. Asia to US shipping rates is also expected to increase later in the year again, after some sharp increases seen last year. The shipping rate increases can only be maintained with discipline across the shipping industry as the economics of supply and demand would normally push prices downward. But there is not a single carrier that can operate profitably at the current price levels.
If the industry fails in pushing higher shipping rates, then we are sure to see a flurry of bankruptcies in 2013 and 2014. If enough shippers go under, then the supply and demand situation could start to shift more favorably to the ocean freighters. Some are also predicting that shipping demand could be increasing by 20% by 2016.
One way or another something has to give; either the shipping industry succeeds in pushing prices up while maintaining capacity or the oversupply situation corrects itself with many suppliers going out of business.