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Container Ship Capacity Growth Dips to Historic Low

Times are tough for container shippers that are facing bloated fleets and steep drops in pricing.

In a recent report, shipping analyst firm Alphaliner said global container ship capacity will grow at the lowest rate ever recorded while shippers take bolder measures to reduce their fleet sizes.

Global container ship capacity is expected to grow by only 4.6% this year, with a significant reduction in boat construction and a higher rate of boat scrapping. This rate falls below the previous lowest year-over-year increase of 5.5% in 2009 and is over twice as low as the average annual growth rate of 10.3% when the data was first recorded in 1990, Alphaliner said.

The decrease in capacity growth this year follows a record-level of growth last year when deliveries totaled 1.72 million 20-foot equivalent units (TEUs). 

Vessel deliveries are expected to reach 1.25 million TEUs this year, according to Alphaliner, but this total would be lower if shipping demand remains at its current level throughout the rest of the year. Citing weak demand, Alphaliner said some ship owners may seek to offset costs by delaying deliveries already on order. At financially troubled yards, orders could be cancelled.

“Any positive impact of the lower fleet growth, as far as a market equilibrium is concerned, would only become apparent if the capacity overhang were cleared. With the current idle containership fleet running at 1.35 million TEUs or 6.8% of the total fleet, it would require a few more years of low fleet growth before the supply-demand imbalance recede,” an Alphaliner analysts wrote. “Demand growth for containerships has also slumped to its lowest levels since 2010, as measured by the growth of the active containership fleet. The active fleet grew by only 2.3%  year-on-year at the beginning of January, reflecting weak global demand.”

The number of idle containerships of above 500 TEUs increased to 337 units as of 11 January, compared to 331 units two weeks prior to that date, Alphaliner said.

The increase came mainly from the smaller ships, as the idle fleet of 500 to 2,000 TEU ships reached 107 units, compared to 99 units during Alphaliner's previous survey. At the same time, several ships of above 7,500 TEUs were put into service again, resulting in a small reduction in overall idle capacity to 1.35 million TEUs.

The goods new for supply chain managers is that despite slowing capacity growth, shipping pricing should remain at historical lows.

According to analyst firm Karatzas Marine Advisors, the average pre-downturn price to ship a container from China to Europe, for example, plummeted to $500 per container, compared to $1,500 to $2,000 dollars per container before the downturn. Shipping prices from China and Asia to North America have fallen by similar magnitudes of scale. The low pricing levels are expected to remain at exceptionally low levels at least throughout the year, according to Karatzas Marine Advisors forecasts.

 “There are no signs of any strong market demand during the pre-holiday period, with carriers starting to cut spot freight rates from China again, giving up part of the gains achieved from the January 1 general rate increases,” Alphaliner said.  “The idle fleet is expected to increase in February as carriers have already announced multiple sailing cancellations to coincide with the New Year holidays in China.”          

Shippers are also expected to continue cutting capacity throughout the year by scrapping ships.

According to Karatzas Marine Advisors, two Panamax container ships were scrapped in December, years ahead of schedule as ship owners seek ways to reduce capacity. Other ship owners will likely follow their examples, especially when Panamax and other container ships are about to be dry docked, which can cost over one million dollars.

Shippers will increasingly target Panamax containerships for scrapping that are up to 5,500 TEUs in capacity, compared to larger 8,000-TEU vessels that offer “better economics in terms of cost per unit,” to reduce the size of their fleets, Basil Karatzas, CEO of Karatzas Marine Advisors, told EBN.

“The larger 'post-Panamax' vessels have been cannibalizing the 'Panamax' market,” Karatzas told EBN. “Now that the Panama Canal is about to be expanded, Panamax vessels are becoming obsolete.”

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