The maritime analysts at Drewry a few months ago said that carriers would proactively manage capacity as volumes and rates fell.

“We were wrong,” Drewry now says, as “A deep-seated instinct to preserve volumes has kicked in, leaving carriers without control of the market.

Supply Chain Digest Says...   Drewry says “There will be no “managed decline” (meaning very effective and timely matching of capacity with demand) “ as it predicted earlier.     What do you say?   Click here to send us your comments       Click here to see reader feedback

Over the course what Drewry calls “this extraordinary phase in container shipping’s history,” Drewry analysts say that they convinced ourselves – after much dialogue with various relevant parties - that a structural change had occurred in the industry, and that consolidation and more efficient carrier alliances would help change old habits.

That was wrong too, Drewry says.

Instead, the blog says, carriers to proactively manage their capacity, and will only act on capacity only when they are forced to do so by heavy financial losses.

The deep-seated instinct noted above to preserve volumes and price lower to secure short-term bookings, rather than control supply, kicked in. Failure to act on that capacity earlier in 2022 has left carriers “powerless and completely exposed to external market forces,” the Drewry blog says.

Carriers had made some efforts on the supply side, such as by voiding sailings. Nevertheless, “Spot rates have continued to fall on a weekly basis, rapidly closing in on five-year 2015-19 averages,” Drewry notes.

‘’The idle fleet percentage is only marginally higher than it was three months ago and demolitions are only barely starting to occur, “Drewry notes.

Drewry says actual carrier capacity will grow a modest 1.9% in 2023, but that comes in the face of falling demand. Worse for carriers, Drewry says, the dramatic easing of port congestion will increase effective capacity at a much greater rate – as much as 19% rise - returning the market to an over supplied position.

Drewry then includes the following chart that shows the dramatic drop in rates from Asia to the US West Coast and to Europe. On sailing to the US West Coast, for example, the cost per TEU has fallen from around $5000 to more like $1000 currently, barely above operating costs.

However, rates from Asia to the US East Coast have remained rather steady.

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Still, the message from these charts, Drewry says, is that “trade route profitability in Asia-West Coast North America and Asia-North Europe is diminishing very quickly, but the impetus for more significant capacity cuts was missing because lanes were still profitable. Left unchecked, however, costs will soon exceed revenues in these routes.”

In fact, Drewry says these charts are “akin to a doomsday clock, counting down the time before carriers incur losses."

Given all that, Drewry now predicts that because “loaded volumes are falling at an alarming rate” and that rates are nearing breakeven levels, carriers will finally get busier with some capacity cuts in terms of idling or scrapping during 2023.

Even so, Drewry says “There will be no “managed decline” (meaning very effective and timely matching of capacity with demand) “ as it predicted earlier.

In good news for shippers, Drewry concludes, “Carriers have lost control of capacity and reverted to price competition to retain volumes.”

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