Ships' captains no longer fear that they'll sail over the edge of the earth. For container carriers today, the real-life brink is bankruptcy. And a growing number are in danger of approaching it.

According to a new study by AlixPartners, the container shipping industry as a whole stands closer to outright failure than anytime since 2010. And the risk grows more serious each year.

Longtime industry observers might be tempted to greet that message with a yawn. They¡¯ve seen the cycles of boom and bust, the ups and downs of freights rates and the demise of any number of weaker lines. Yet the stronger carriers sail on, in bigger and evermore efficient ships.

Things are different now, said Lisa Donahue, a managing director with AlixPartners. (Fittingly, she oversees the firm's "Turnaround and Restructuring Service.") The traditional cycles are out of whack, she said-to the point where the industry is experiencing "a new normal."
"Normal," in this case, doesn't mean "good." At first glance, one might think the business was in shipshape, with container vessels of record size and the promise of steady global trade growth. But the industry's woes aren't hidden below the waterline. They take the form of outright dysfunctional behavior by the carriers themselves.

"There's almost a lack of a learning curve,"said Donahue. "They go through these massive cycles where they overbuild, get over-leveraged and crash down."

So it has gone for decades. What's new, said Donahue, is the nature of economic cycles. They're shorter and more severe than ever before. And the old strategies for riding out the storm aren't working anymore.

Take the practice of removing vessels from service, in order to restrict capacity and drive up rates. As recently as 2009, there were hundreds of ships laid up at the Port of Singapore, as carriers sought to address a glut of capacity that their own actions had created.

As the global economy improved, and freight rates firmed up, idled ships began filtering back into the marketplace. Of course, their return helped to drive down rates once more, so carriers once more began withdrawing tonnage from service, although not as drastically as in the trough of the recession. The fourth quarter of 2013 saw the suspension of six trans-Pacific service loops, and similar reductions occurred in other trades.

The problem for carriers is that the average size of the modern-day containership is growing, with the largest vessels able to carry the equivalent of 9,000 forty-foot containers on a single voyage. According to a report from earlier this year by Drewry Maritime Research, those behemoths are proving too expensive to lay up, resulting in fewer service withdrawals in 2013.

Another way in which carriers have sought to boost profits is by slowing their ships, from 20 to around 17 knots, in order to save on fuel. For shippers, the move means longer periods during which their goods are on the water, and higher inventory-carrying costs.

But ships can only go so slow before service starts to suffer. According to another Drewry report, container-carrier reliability slipped in every quarter of 2013, and is expected to grow even worse this year. The main culprit was skipped voyages, but pokier ships also result in disgruntled shippers.

Trans-Pacific carriers met their schedules just 64% of the time in the  fourth quarter of 2013, said Adam D. Hall, senior director of international logistics with Dollar General. "It was one of the worst on-time performance periods [in the trade]," he said at the Journal of Commerce's recent Trans-Pacific Maritime Conference in Long Beach. "That for us hurts."

In such an environment, it's no surprise that carriers can't maintain a good portion of their previously announced rate increases. As so often in the past, they seem willing to place market share above profitability. Drewy says ocean freight rates are no longer tied to market fundamentals, and that carriers' profits are now almost solely the result of cost-cutting. (Such as they are. The world¡¯s top 15 container lines lost an estimated $1.1 billion between 2007 and 2012.)

Now, without a sustained period of recovery, carriers are unable to shore up their finances, AlixPartners said. Applying the Altman Z-score to 15 publicly traded carriers in 2013, it found "a higher risk of financial distress than since the start of the financial crisis."

To a large extent, carriers are placing their hopes for survival in more powerful vessel-sharing agreements, to help fill ship slots. Together, the newly expanded P3 and G6 alliances could eventually command between 60 and 80 percent of total capacity, depending on the route.

The alliances might well prop up some of the biggest lines. But they could also serve to "widen the gap between the haves and the have-nots,"Donahue said. Meaning that the container-shipping industry could soon be in for another round of consolidation -even outright failure-of the weakest players.