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Supply Chain News: Container Carriers Once again on Ship Buying Spree, which May Push Rates Down

 

 

Optimism by Carriers but also Green Shipping Rules Driving the Order Book

 

April 20, 2022
SCDigest Editorial Staff

After 18 months of unusual discipline in terms of adding capacity, which help to send shipping rates soaring, ocean container carriers are once again binging on new vessels.

Supply Chain Digest Says...

 

Part of the demand for new ships comes from market optimism by the carriers and/or a play to gain share. But increasing green regulations are also a key factor.

 
 

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After the end of the Great Recession in 2009, carriers continued to add new ships, many of them new huge megaships that soared past 20,000 TEU in terms of capacity. That capacity addition came as global trade volumes slowed versus pre-recession levels, leading to a decade where most years in which capacity rose faster than shipper demand.

Faced with oversupply, rates for container shipping tanked, often to little above operating costs, leading to years of significant red ink for many carriers.

Then came the pandemic in early 2020, and at last the carriers figured out this supply-demand thing. New ship orders fell dramatically, and many carriers smartly used cancelled sailing to reduce effective capacity.

The result: the supply-demand balance changed, sending rates to record levels and a gusher of profits for carriers.

According last week to BIMCO, an organization of ship owners, ship brokers and others in the ocean container trade, there are now ships on order representing 6.5 million TEU, the first time it has reached that level in 15 years, in a trend that really started in the second half of 2021.

BIMCO also estimates that the carrier order book now equals 26% of the total global fleet size for the first time since 2014.

According to the maritime-executive.com web site, major carriers including MSC, ONE, and Evergreen are all planning vessels near or exceeding 24,000 TEU in capacity – what will be the largest containerships ever built.


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Other carriers, including Maersk, believe a more optimal and versatile ship size is around 15,000 to 16,000 TEU, placing its orders accordingly.

By contrast, ships on order in October 2020 reached a multi-year low of just 2 million TEU in capacity.

Part of the demand for new ships comes from market optimism by the carriers and/or a play to gain share. But increasing green regulations are also a key factor.

BIMCO says that some older vessels will not be worth refurbishing to meet the new compliance requirements, forcing owners to plan for scrapping the ships.

Rates already Headed Down

This new capacity will likely push container shipping rates lower, but already so far in 2022 they are declining from the all-time highs seen in 2021.

The World Container Index from the analysts at Drewry is down 16% since the beginning of the year. Rates for shipping a container from Shanghai to Los Angeles and Shanghai to New York are down about the same, 17% and 16% respectively.

With that drop, carriers have one again started employing “void sailings” to reduce effective capacity.

What are your thoughts on the larger containership order book? Let us know your thoughts at the Feedback section below

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