Australia / Analyst Insights
Global shipping freight rates have declined due to overcapacity

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by William McGregor
Nov 21 2017

container shipThe water freight transport industry has faced challenging conditions over the past five years. The industry is a key link between Australian companies and the world economy, with international shipping services dominating the industry. In contrast, domestic shipping accounts for less than 10% of industry activity by volume. Despite rising total merchandise imports and exports, competition in global water freight transport has constrained the industry’s performance over the past five years.

In the prosperous years prior to the global financial crisis, many carriers commissioned the build of new megaships. In recent years, these completed megaships have joined the pre-existing fleet of ships, and contributed to overcapacity. Dozens more of these megaships are due to enter major trade lanes over the next five years. For example, Cosco will soon have another 17 megaships at its disposal. This increasing oversupply of vessels has forced global shipping freight rates down to record lows. As a result, revenue growth in the water freight transport industry is expected to be constrained to an annualised 1.0% over the five years through 2017-18, despite continued increases in export volumes supporting the industry.

Water freight transport operators have also faced growing competition from international airlines over the past five years. Rising inbound and outbound air passenger traffic has boosted international flight numbers, which has increased the stowage capacity for airfreight on passenger aircraft. According to the Bureau of Infrastructure, Transport and Regional Economics (BITRE), total inbound and outbound passenger numbers on international flights increased at an annualised 5.6% over the five years through 2015-16 (latest available data). This trend has also contributed to the decline in global shipping freight rates.


Demand for international shipping transport depends on the volume of trade between Australia and the rest of the world. The full effects of free trade agreements with China, Korea and Japan are likely to be realised over the next five years. Containerised and non-containerised trade through Australian ports is expected to increase, as manufacturers in these nations take advantage of reduced trade barriers. In a December 2014 report, BITRE estimated that the volume of containerised trade in Australia will increase at an annualised 6.0% over the five years through 2022-23, while non-containerised trade is forecast to increase at an annualised 3.7% over the same period.

Australia’s merchandise trade is forecast to increase over the next five years.  This is expected to reduce the water freight transport industry’s capacity oversupply burden. In addition, industry vessels are expected to continue increasing in size, making it harder for new players to enter the industry. Larger players that can take advantage of economies of scale are likely to gain market share by undercutting their competitors. As a result, industry consolidation is expected to increase, and lead to a more stable future for the industry.

Related industries:

I4810 Water Freight Transport in Australia

I4910 International Airlines in Australia