Cost constraints and diminishing profitability pressure shipping industry to consolidate: Drewry

Cost constraints and diminishing profitability pressure shipping industry to consolidate: Drewry

Cost constraints and diminishing profitability pressure shipping industry to consolidate: Drewry Shipping consultancy Drewry said in a recent report that mergers and acquisitions in the shipping industry are expected as cost pressures and reduced revenues force players to cope with the current downcast market conditions.

Carriers are currently under pressure to squeeze as much savings as they can from their operations as revenues continue to contract.

According to Drewry, 2016 first half financial results reflect an average 18% dip in revenues for major carriers. The consulting firm warned that protracted revenue losses could shrink the market by $29 billion this year compared to last year. This level reflects a seven year low for the industry.

 “The difference between 2009 and now is that back then the industry’s cost base was far higher, leading to a collective operating loss in the region of USD 19 billion. Shipping lines are now more cost-effective, but even so the industry will probably lose at least USD 5 billion this year,” Drewry stated.

The firm further estimated that the industry has already lost more than $50 billion in sales since 2014, resulting in crippling losses for some major players, which is a catalyst for mergers among a number of them.

Drewry also reports that margins reported in the second quarter fell to four year lows, and that the peak season expected in the third quarter “will probably be a washout too.”