A “reduced appetite” for ordering ultra-large container vessels (ULCVs) and carriers instead aspiring to become global logistics integrators could finally balance container capacity supply with demand, according to new analysis from Drewry.
Indeed, at the end of last year Maersk’s chief executive, Soren Skou, told The Financial Times: “We for sure have to do some acquisitions in the logistics space, primarily to gain capability and scale.”
Currently, Maersk Line has just three ships on order and appears unconcerned that 2M partner and rival MSC is narrowing the capacity gap and South Korean HMM has returned to the shipyards in a big way.
“Aside from feeder ship replenishment, there has been no reaction from other lines to HMM’s mega-ship order and as such we have greatly reduced our projected orders for 2020 onwards,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster.
In September, HMM placed an $2.6bn order with South Korean yards – underwritten by funds from the state-owned Korea Ocean Business Corporation – for 12 23,000 teu and eight 15,000 teu ships for delivery from the first quarter of 2020.
Weaker global macro-economic drivers have contributed to a downgrade in Drewry’s port throughput forecast for this year to growth of approximately 4%, but it said the “softening trend should be mitigated by changes made on the supply side to better balance the market”.
It said that since its last forecast, the delivery of several newbuilds has been pushed back to 2020 and, with an expected increase in scrapping this year, the net addition to the container fleet this year is expected to be less than half that of 2018, at just 2.5%.
According to Alphaliner the global cellular fleet as at 31 December 2018 stood at 5,284 ships for 22.3m teu, representing a year-on-year growth of 5.7%, which included 165 delivered during the year, equating to 1.3m teu, while only 66 vessels, 111,000 teu, were scrapped.
Most analysts are predicting demolition levels this year will increase, back to levels seen in recent years, as older, high fuel-consuming vessels are taken out of service ahead of the IMO’s 1 January 2020 low-sulphur regulations.
Drewry also expects capacity curbs associated with IMO 2020, as ships are temporarily taken out of service for the retro-fitting of scrubbers that will enable the vessels to continue to bunker with less-expensive heavy fuel oil.
Moreover, it said that wider use of slow-steaming to lessen the impact of higher fuel costs would also help absorb new supply.
“This subsequently feeds into a much brighter supply-demand index forecast for carriers through 2022,” said Drewry, adding that, notwithstanding the slowing demand growth, the change in supply dynamics would contribute to “better freight rates and profits” for the container lines.
“Last year was one of the most unpredictable container shipping industry has faced,” said Mr Heaney, adding that he expected this year to be “similarly volatile” due to uncertainties associated with the US-China trade war and the new fuel regulations.
However, in an upbeat conclusion to its review, Drewry is predicting “another solid year for the market”.
And so far the evidence is that carriers are taking no chances that excess capacity will promote a new damaging “race to the bottom” for freight rates, by blanking a number of voyages on their east-west networks in the softer demand weeks around the Chinese new year holiday.