Some context (2014) http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-hidden-opportunity-in-container-shipping http://w

Some context (2014) http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-hidden-opportunity-in-container-shipping http://www.mckinsey.com/business-functions/strategy-and-corp... The industry’s bleak economics Transport is often seen as the harbinger of the broader economy. It certainly fulfilled that role in the recent economic crisis, as business fell off precipitously. However, shipping is now also a kind of lagging indicator: its performance is trailing the broader, somewhat erratic global recovery. A big part of the problem is that the industry continues to add capacity. By 2015, the typical vessel delivered will handle about 10,000 20-foot equivalent units (TEU), five times more than ships built in the 1990s. Not surprisingly, pressure to fill this capacity and capture the efficiency benefits of larger vessels has led to hasty decisions by carriers. In turn, profits have become exceptionally volatile. Record losses in 2009 were followed by strong profits in 2010―and significant losses again in 2011. The supply/demand imbalance, the larger vessels that will only make the imbalance worse, and the volatility of profits are significant problems. However we argue that they are in fact symptoms of these deeper challenges: The market is saturated, and the industry is now in a race for market share. The quest to take share is squeezing out smaller players and has started another wave of price wars. Shipping companies are forsaking their guidelines on pricing, both in spot rates and general rate increases, and choosing not to enforce contracts with customers. Companies are pricing at their marginal cost. That’s not necessarily bad; in fact, it’s the right decision for many. But for others it is irrational, and when everyone does it, the industry suffers. Many shipping companies have ineffective cost-management systems.