Bigger May Not Be Better

With the global container volume being reported as growing faster than it has in six years, optimism is high in the industry. According to London based shipping analyst, Drewry, most of the growth is from major east-west trades, where volumes are up 6 percent from this time last year. Asia-Mediterranean routes are up almost 10 percent and Asia-north Europe volume is up 4 percent. Drewry gathered statistics from 150 sites around the world and announced that container handling grew by 6.6 percent in the first half of this year.

Earlier this year Drewry predicted an operating profit of $1.5 billion for the container shipping industry but, in July that number was changed to $5 billion, due to of the increase in container volume.

Amid this growth, container lines have placed orders for even larger vessels. The largest vessel afloat at this time is 21,413-TEU OOCL Hong Kong. A TEU (Twenty-Foot Equivalent Unit) is a 20-foot shipping container, measuring  20’x8’x8.5’ and the OOCL Hong Kong can hold 21,413 of them. However, rumors have been spread about the possible order of nine 22,000-TEU vessels by CMA CGM. The rumors have not been substantiated but, Drewry warns that the orders threaten the industries return to profitability and that it will reignite a battle for market share among the world’s major container lines.

Bruce Barnard, Special Correspondent for JOC.com reported: There have already been 20 ships delivered this year between 10,000 and 25,000 TEU and they are entering the Asia-Europe trade at a pace of one per week. These new vessels will continue to put pressure on the supply-demand balance.

“From an industry perspective there is simply no good reason to add these ships to already overcrowded oceans,” Drewry said.

Data from Alphaliner shows that the active fleet has grown by 918,000 TEU year over year to 19.93 million TEU as of May, an increase of 4.8 percent compared with the same period last year.

The question being asked is, what if demand growth falters? Will they be able to keep their vessels filled without dropping prices to attract more cargo and thus cut into their bottom line? Drewry believes that the rising Asia-Europe demand will not be enough to fill the new Mega-Ship capacity, even if a positive view of demand is adopted.

“Despite a long period of sobriety it appears that carriers’ addiction to big ships still remains in the blood stream,” Drewry said. “Given the chronic and ongoing overcapacity problem that has blighted carriers’ profits in recent years what could have tempted CMA CGM to risk undermining the still very fragile recovery?”

Putting CMA CGM’s motives aside, it looks like these Mega-Ships are the future of an ever changing industry.

Darrin Long

References:

Barnard, B. (2017, Aug. 07). New carrier capacity heating up market share battle. Retrieved Aug. 15, 2017, from https://www.joc.com/maritime-news/container-lines/industry-flirting-battle-market-share-analysts-warn_20170807.html

Knowler, G. (2017, Aug. 14). Global Container volume gain forecast at fastest clip. Retrieved Aug. 15, 2017, from https://www.joc.com/maritime-news/global-container-volume-hit-levels-not-seen-six-years-analyst-predicts_20170814.html

Knowler, G. (2017, Aug. 2). Rising Asia-Europe demand won't fill new mega-ship capacity. Retrieved Aug. 15, 2017, from https://www.joc.com/maritime-news/solid-demand-not-enough-absorb-mega-ship-inflows-asia-europe_20170802.html

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