New Fleets of 1.2 million TEUS to Join the Market, Appropriate Capacity Management Needed

In 2020, hundreds of containerships, including 23 ultra large container vessels (ULCV), will be delivered to the market. This will be a challenge for this industry, calling for appropriate strategy from the players, otherwise there will be oversupply and potential for unhealthy competition.

The new builds will create a total capacity of 1.2 million TEUs, of which ULCVs account for 532,000 TEU. The 23 new behemoths will join the fleets of three major players, namely HMM (soon of THE Alliance), CMA CGM (Ocean Alliance) and MSC (2M).

Drewry, a London-based market analyst, noted that new orders would be constrained by major factors of existing structural overcapacity, uncertainty over future environmental regulations and compliant vessel fuels, and new carrier strategies directing capex focus away from ships and towards IT and logistics.

“The current delivery schedules for the new ULCVs are spread evenly through 2020, which should make their integration a little easier than if they arrived en masse. What would lighten the load is if some of those scheduled for an end-year delivery were to slip into 2021 delivery slots, which based on past history is entirely possible,” Drewry said.

Even so, a significant amount of new capacity is set to enter the market, further pressuring the supply-demand balance.

However, liners seem to have perfected their capacity management skills, avoiding capacity gluts and rate depression by switching capacity around and hiding it when necessary.

This has been predominantly achieved through void sailings, of which Drewry counted 253 in the East-West lanes alone during 2019 (December’s tally being a preliminary estimate); a significant increase on the 145 cases in 2018.

Some relief is also expected from ships being taken off the market to complete their scrubber installations.

“As of late December 2019, there were still some 260 units with an aggregated capacity of nearly 2.4 million TEU pending retrofits so the idle fleet will continue to remain high for a few more months at least, while reported yard delays will keep ships out of service for longer than expected.

“Therefore, while Drewry acknowledges that capacity management will continue to be challenging this year we don’t believe the current delivery schedule is anything that lines will not be able to cope with.”

Drewry’s global supply-demand index adjusted for idle fleet calls for a tiny decrease of 0.4 points to 90.6 in 2020. Any index reading below 100 represents overcapacity.

“We expect the market to continue in much the same manner as it did last year; lines will remain price-takers as the supply-demand fundamentals will work against them, although they will be able to remain profitable so long as operating costs are kept in check. “

Looking beyond 2020, liner companies would have to increase their commitment to demolitions and stay clear of ordering new tonnage to fend off overcapacity.

As explained by Drewry, the biggest risk to the latter is a significant government influence within some Asia-based carriers that could force politically-driven rather than commercially-driven investment decisions.

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