Ocean carriers have lost control of capacity and reverted to price competition to retain volumes, according to analyst Drewry.

That will leave liners operators facing a position where costs will soon exceed revenues, the analyst believes.

“A deep-seated instinct to protect volumes has kicked in, leaving carriers without control of the market,” Drewry said in its latest Container Forecaster.

“While cargo demand has contracted at a faster pacer than many anticipated and some action has been taken to address overcapacity, it has been largely too little, too late,” it added.

The impetus for liner operators to implement more significant capacity cuts was missing because trade lanes were still profitable, it said.

But the failure of liner operators to manage capacity has sent revenues on key east-west trades careering towards below break-even levels.

Trade route profitability in Asia-West Coast North America and Asia-North Europe trade lanes is diminishing very quickly, it said.

Domesday clock

Drewry likens the narrowing gap between costs and revenues to “a doomsday clock, counting down the time before carriers incur losses”.

But it does not expect an immediate rush to lay up or scrap as carriers hope for a rush of bookings for the pre-Chinese New Year.

That is partly because carriers can also cascade ships onto the profitable transatlantic trade.

“Given that loaded volumes are falling at an alarming rate and that rates are nearing breakeven levels, we think that carriers will finally get busier with some capacity cuts during 2023,” it adds.

The analyst concludes there will be no managed decline involving effective and timely matching of capacity with demand.