Container Supply: Overcapacity To Remain An Issue In 2014

The projected strengthening in demand in the container shipping market offers a more positive outlook for the sector than it has witnessed in previous years. The key test for the industry however, remains its ability to control the issue of overcapacity, which has plagued the sector since the 2009 downturn. BMI expects capacity management to remain the major focus of shipping lines in 2014, as a greater volume of newbuilds is due online in 2014 compared to 2013.

Volumes Up, Vessels Down, As Megas Change The Landscape

In January 2014, growth in the global container shipping market has remained static year-on-year (y-o-y), increasing by 5% (measured on January 10 2014) to 214.2mn deadweight tonne (dwt) - the same growth level recorded in January 2013.

Containership Capacity Increasing...
Average Containership Fleet In Service, DWT '000 and % Change y-o-y

Container Supply: Overcapacity To Remain An Issue In 2014

The projected strengthening in demand in the container shipping market offers a more positive outlook for the sector than it has witnessed in previous years. The key test for the industry however, remains its ability to control the issue of overcapacity, which has plagued the sector since the 2009 downturn. BMI expects capacity management to remain the major focus of shipping lines in 2014, as a greater volume of newbuilds is due online in 2014 compared to 2013.

Volumes Up, Vessels Down, As Megas Change The Landscape

In January 2014, growth in the global container shipping market has remained static year-on-year (y-o-y), increasing by 5% (measured on January 10 2014) to 214.2mn deadweight tonne (dwt) - the same growth level recorded in January 2013.

BMI highlights that static levels of growth in the global fleet were recorded for the whole of 2013, with the global box fleet expanding by 5%, the same level of growth recorded in 2012, which in turn marked a slowdown from the 7.1% expansion recorded in 2011.

Containership Capacity Increasing...
Average Containership Fleet In Service, DWT '000 and % Change y-o-y

Although in vessel capacity terms the global box fleet's growth has remained static, when the fleet is measured by the growth in the number of vessels, there is a marked decline. At the end of 2013, the global box fleet stood at 4,798 vessels - a y-o-y decline of 0.2% when compared to the 2012 figure of 4,807 container ships.

... But Vessel Numbers In Decline
Average Containership Fleet In Service, Number Of Vessels and % Change y-o-y

The disparity between the y-o-y growth in the box shipping sector's capacity when compared to vessel numbers highlights a major theme that BMI has been tracking in the container shipping sector - that of vessels getting bigger. The trend for mega vessels has prevailed and this has led to the number of vessels being utilised contracting, as operators swap to using larger vessels on strings, thereby decreasing the number of ships needed for a rotation.

BMI highlights the steady trend for average vessel sizes increasing. In 2005 the average container ship boasted a capacity of 33,187dwt; over eight years to 2013 the average box ship size has increased by 34.7% to reach 44,715dwt.

Box Ships Getting Bigger
Global Average Container Vessel Size, DWT

This trend for bigger vessels as opposed to more vessels is also evident for newbuild ships. An indication of the level of vessels due online over the next 18 months is the current number of vessels under construction. At the end of 2013, the number of container ships being constructed stood at 82. This marked a 17% decrease in the number of box vessels being built at the end of 2012.

Mega Vessel Trend To Continue
LHC: Containerships Under Construction (Number of Vessels). RHC: Containership Launches By Capacity (TEU)

However, this decline is at odds with the capacity that is projected online in 2014. AXS Alphaliner estimates that 1.6mn twenty foot equivalent units (TEU) of new capacity is due online in 2014, a y-o-y increase of 10.3% on the 1.45mn TEU that came online in 2013.

Slow Steaming And Idling To Remain In Place

This increase in capacity will, despite the projected uptick in demand, continue to place pressure on the box shipping market, with overcapacity set to ease but not disappear. Operators will therefore continue to utilise their tried and tested methods for capacity managements, namely slow steaming and vessel idling. The continued influx of larger ships will also lead to further cascading, whereby vessels are removed from a particular service as larger ships come online to operate on that route and are placed onto other routes.

Containership vessel speeds continue to slow. The annual average speed for a box ship in 2013 stood at 10.23 knots, a y-o-y decline of 2% and a drop of 21.3% from the 2008 average box shipping speed of 13 knots. As overcapacity is set to remain an issue in 2014 we expect the strategy of slow steaming will result in ship speeds potentially decreasing even further.

Capacity Management Key
LHC: Containership Average Speed (Knots). RHC: Idle % of Global Container Fleet

Idling of ships is another tactic that BMI believes will remain prominent in 2014. According to Lloyd's List Intelligence the current idle container shipping fleet stands at 2.9% of the total box ships globally, as of January 15 2014. This marks a considerable decline y-o-y in the proportion of container vessels at anchor, as in the same period in 2013 the global idle box fleet stood at 6.7%.

BMI expects the idle box fleet to remain volatile over 2014, as container lines opt to anchor ships or decrease the volume of idle ships due to seasonal reasons, such as the Chinese New Year or peak season. The fact that carriers were prepared to idle as much as 6.7% of the total global fleet in January 2013 highlights the lengths they are prepared to go to in order to manage capacity, and we believe that this stance will not change in 2014.

Cascade To Continue

The continued influx of larger vessels, with more Triple-E type Maersk Line ships due online in 2014 and MSC's fleet expansion from 14,000TEU to 16,000-18,000TEU due to begin in Q314, will lead to further cascading in the container shipping sector.

The recovery in the US economy has led carriers to place more focus on their transpacific operations. The development of the nation's ports, with the country's key gateways of Los Angeles and Long Beach both expanding to ensure they can handle larger ships and retain their roles following the expansion of the Panama Canal offers the carriers the ability to cascade displaced Asia-Europe tonnage onto the transpacific route.

Long Beach handled its first 14,000TEU ship in October 2012. Such vessels at Long Beach are set to become a regular sight at the port, with two 14,000TEU ships now assigned to MSC and CMA CGM's Pearl River Express service.

The expansion of the Panama Canal, due to be completed in 2015, offers further cascade opportunities for shipping lines, as the waterway will be able to cater for 12,500TEU box ships; East Coast ports are expanding and investing in preparation for this.

BMI has previously highlighted how the cascade effect is also filtering down to emerging trade routes (ETRs). For example, ships with capacities of between 8,000-9,000TEUs are becoming more standard on the Asia-Latin America routes.

This is also the case on Europe-Latin America routes. Drewry Maritime Research highlights that in July 2008 the average largest capacity vessels operating on Europe-East Coast South America routes were the 5,552TEU ships on the Loop A service operated by Hamburg Sud, Alianca, CMA CGM and Hapag-Lloyd. Latest data for this route for November 2013 show that the largest vessels now plying this route offer average capacities of 8,456TEU.

P3 Network: Major 2014 Development, But What Impact On Supply?

The major development in the container shipping sector in 2014, which could have the potential to impact capacity, is the planned launch of the P3 Network. The alliance, which will see the world's largest container lines (Maersk Line, MSC and CMA CGM) join forces to operate services on the major trade routes of Asia-Europe, transpacific and transatlantic is currently being considered by regulatory authorities in the US, Europe and China.

The threat feared by the shipping sector, which the regulatory authorities will evaluate, is whether the P3 Network has the potential to create a monopoly and have a negative impact on other shippers. To counter this view and remain within regulations, members of the P3 Network have stated that an independent operating centre will be set up to manage vessel schedules, allocations and ship utilisation.

Such an alliance does have the potential to impact the capacity in service in the container shipping sector. For example the P3 Network will be reducing the number of ships they deploy in the main east-west trades by 37.3%, from 346 services to 252 routes.

The extent of the proposed P3 Network to control capacity is however up for debate, with Alan Murphy, SeaIntel Maritime Analysis' chief operating officer, warning that 'the P3 Network will not lower oversupply...Alliances are not consolidators. Members are not cooperating on pricing sales, marketing and customer sales'.

Dominant Force
P3 Network, % of Total Route Coverage

BMI also highlights that even though the P3 Network would be the largest in the world, it will still face competition and would not slash its capacity and threaten its market share. In response to the planned P3 Network, the G6 Alliance - which boasts as its members Hapag-Lloyd, NYK, CL, APL, HMM and MOL - has announced that it plans to expand on the trade routes of the transatlantic and Asia-US West Coast.

Taiwan's Evergreen Line, which has remained outside of the alliance structure, is currently in talks with the CKYH Alliance (made up of COSCPO, 'K' Line, Yang Ming and Hanjin Shipping) to expand their cooperation and UASC and CSCL, which currently cooperate in a vessels sharing alliance on the transpacific, are likely to expand this alliance onto the Asia-Europe trade route in the next few years, with both parties holding orders for 18,000TEU ships.

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