Shippers that move cargo by truck, rail, and air have been losing sleep over rising freight rates, record-high fuel surcharges, and continuing capacity shortages. But those who ship by ocean have been able to get their beauty sleep, so to speak: There's sufficient capacity to meet current demand, and there are enough new ships on order to handle expected trade growth—and then some. What's more, ocean freight rates in some trades have been holding steady or even declining.

According to Mark Page, research director at Drewry Shipping Consultants in London, the global supply of container ships has exceeded demand since last year. That disparity will only increase as some 1,200 ships now on order begin to come into service.

Even if most of those ships replace aging vessels, there will be a net capacity increase because many of the newbuildings will be much larger than the ones they replace. About 150 of the ships on order will have capacities of 8,000 TEUs (20-foot equivalent units) or more, Page notes. Few ports will be able to handle those giants, and those that can are likely to experience serious strains on their operational efficiency.

Deep-sea rates, meanwhile, have been on a downward slide. Rates charged by U.S.-based operators, tracked by economist Elizabeth Baatz for LM's Price Trends column, were up just 0.8 percent in May 2006 compared to May 2005. That's a huge change from the previous year, when shippers saw year-on-year price hikes of 20 percent or more compared to 2004.

But overcapacity is just part of the story. As longstanding trade imbalances begin to even out on some lanes, rates are also coming into balance. In the trans-Pacific, most analysts say, the growth rate for containerized imports this year and next will be well below that seen in 2005. And when demand for inbound capacity slacks off, rates are sure to fall. At the same time, China's appetite for raw materials and machinery has boosted outbound volumes, and bargain-basement rates for exports to Asia are already rising.

Historically speaking, when costs are up and rates are down, there's enough financial pressure on carriers to force them into shotgun marriages. That appears to be the case now: Last year, Maersk Line acquired P&O Nedlloyd, and Hapag-Lloyd's parent company bought CP Ships. Ironically, both of the target companies were themselves the products of multiple mergers during economically trying times. Clearly, earlier rounds of consolidation were not enough to keep even well-managed carriers afloat. Will we see more of the same in the next few years? The word from some industry analysts and consultants is that it's a pretty good bet.