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Freight Rates ‘to fall by 1.6% to 2.6% per year’

(Damian Brett – Lloyd’s Loading List)

Shipping lines should concentrate on expanding alliances to improve profitability and escape the vicious cycle of overcapacity, according to a new report from the Boston Consulting Group, which concludes that current attempts to improve the fortunes of container shipping lines by investing in ultra-large vessels create only a temporary competitive advantage – but in the long term, it will accelerate overcapacity.

In total, BCG estimates that supply will increase by 30% to 24m teu by 2019 while demand growth will slow. This will result in freight rates declining by between 1.6% to 2.6% per year until 2019, which will put carrier profitability under further pressure.

The report said that carriers’ cost reduction programs have helped improve performance, but to survive in the future they will need to adopt a more holistic approach and gain further savings from the alliance model. Conventional alliance models tend to focus on optimising slot costs and extending network reach, the authors said. Click here to read more.