According to Drewry Maritime Research, the profitability of the liner shipping industry is in danger for the rest of 2015.

Overcapacity, weak demand and aggressive commercial pricing have led Drewry to downgrade its forecast from earlier in the year, when it predicted profits of up to $8 billion for container shipping carriers.

In the first quarter, industry operating margins were 8% but falling oil prices have led to lower freight rates, which are expected to continue to fall in the second half of the year. In fact, according to Drewry, freight rates will fall at their fastest rate since 2011, primarily due to a 32% decline year-on-year from the four main East-West head haul trades.

To remedy the situation, Drewry recommends “radical action” to deal with the overcapacity that is running rampant within the industry. While applauding a recent decision by the Ocean Three lines to remove approximately 4% of trade capacity on the Asia-North Europe trade, there is still more that needs to be done. As many as 129 ships of 8,000 teu and above still need to find homes across a number of trades in the second half of 2015.

“There are not enough good homes for ships of over 8,000 teu where they can be placed without doing some damage to the supply/demand balance,” said Neil Dekker, director of container shipping research at Drewry. “Ocean carriers do not want to idle these expensive assets. The orderbook is starting to get out of control, with another 1.14 million teu added since January. Carriers’ emphasis on ordering so many big ships is starting to backfire and virtually all major head haul trades are plagued by overcapacity.”

As Dekker notes, the call for more large carriers is not in line with where the industry is seemingly headed. Each quarter brings another 10 to 15 ULCVs (ultra large container vessels) into the market and the resultant cascade of tonnage into the Transpacific, Latin American and Asia-Middle East trades is having a genuine detrimental knock-on effect.