Fleets of mega-ships setting sail point up to how container shipping capacity should remain in excess in the near and mid-term, despite carriers’ efforts last year to aggressively stem their losses through mergers and scrapping in-service vessels.
The good news for those paying to ship stuff is that the overcapacity should continue to exert headwinds on pricing as the capacity remains in excess. But the bad news is that expected increases in demand as well as other factors will likely prompt an uptick in pricing, according to analyst consensus estimates.
Container shipping prices are expected to increase through next year, but over capacity will likely dampen the possibility of huge price spikes. Photo courtesy: CMA-CGM
But how much prices will rise remains anyone’s guess, Alan Murphy, an analyst for SeaIntel Maritime Analysis, told EBN:
Last year was the bottom of the valley in pricing. We expect a gradual increase in freight rates during the coming years. After 2020, we might possibly see a shift where there will be a shortage of capacity. This scenario would, of course, lead to very high freight rates, but we can’t say for sure if that is going to happen or not, of course.
Capacity glut dynamics
Shipping prices fell slightly this fall after gradually rising since the beginning of the year. But while prices are expected to rise again as mentioned above in 2017, shippers’ hopes they will be able to command much higher prices have been dashed by the expected launch of mega-ship fleets in 2018 capable of transporting over 20,000 containers each.
According to data from Alphaliner, demand for shipping will have to increase by 8% per year to absorb the extra capacity coming on-stream by the end of 2018. Shipping demand growth of 5% per year would mean the capacity glut will continue in 2020.
The excess capacity could stoke further pricing pressures as ships with a collective total in capacity of 1.6 Mteus (million 20-foot equivalent units) are set to sail next year, according to Alphaliner data. Excess capacity is expected to total 0.8 Mteu by the end of 2017.
All told, Alphaliner predicts that the excess capacity, barring unexpected massive ship-scrapping initiatives and other factors, will exist until the third quarter 2019.
“We have a large overhang of capacity that is still coming on-stream during the next couple of years,” Murphy said.