Changing lanes: Is liner shipping heading towards overcapacity?
Over the past year more than half of deepsea trades have witnessed fleet capacity grow faster than deployed capacity
Forecasts indicate that the influx of fresh tonnage in the short to medium term will result in vessel supply outstripping demand. Such a scenario will require carriers to rely on many mechanisms to limit the impact of excess capacity
SUBDUED container demand has led to growing fears of an impending supply glut for container shipping and the repercussions of another era of overcapacity taking centre stage.
Such concerns do come with a degree of justification given the sector’s hefty and growing orderbook, and past form. Fortunately, however, there are signs that carriers are already making use of the tools at their disposal to absorb this fresh tonnage.
The influx of more than 1m teu (brought about by the deployment of 159 new vessels) accompanied by the removal of less than 40,000 teu (from 31 vessels of a maximum size of 4,300 teu), has resulted in an overall annual increase of 4.6% in global fleet capacity since the second quarter of 2022.
However, individual trade corridors have been affected differently by the introduction of the new vessels.
In terms of the number of vessels, the most attractive market has been the intra-Far East, where 70 new vessels have been allocated since the second quarter of 2023. As a standalone carrier, SITC has been responsible for largest volume of this trade allocation both in terms of total ship numbers and capacity.
Unsurprisingly, the majority of new vessels allocated to the intra-Far East market have been used to strengthen connectivity between China and other Asian countries as the production of manufactured goods continues to spread across the continent, most notably to Vietnam, Thailand and Indonesia.
MDST estimates that 82% of new vessels, or 94% of new capacity, has been allocated to trades serving China and these emerging manufacturing countries in the Far East on deepsea routes connecting the region with the rest of the world.
The results of our analysis are summarised in the following table.
As shipping lines have been adding new calls in their offered services and/or reducing their speeds, the annual 6% increase estimated in fleet capacity has translated into a lower annual rate of circa 3% in deployed capacity. This, in turn, has resulted in an overall reduction in the level of capacity offered per vessel deployed. At a global level, the mean contraction equates to -5.8%.
Breaking down the comparison between fleet capacity and deployed capacity, MDST's analysis shows that 25 out of 42 trade corridors served by the shipping lines in Q2 2022 and in Q2 2023 saw fleet capacity grow at a faster rate than deployed capacity.
This will raise concerns of the industry heading towards another supply glut given the significant level of shiny new tonnage due on the water in the coming months. But this will not necessarily be the case.
The way in which shipping lines have managed the additional 1m teu added to the market over the past year shows that there are ways to contain the increase in deployed capacity, whether through slow steaming and additional services to strings and loops. Further, it is equally plausible that in addition to these mechanisms adopted by carriers there too will be an intensification of vessel scrapping.
The total capacity of containerships scrapped so far in 2023 has amounted to 58,000 teu, which represents around just 0.3% of the existing containership fleet in Q3 2023; however, this still exceeds the minimal volume of containerships sent for scrappage in the whole of 2022, totalling just 9,200 teu.
As more new containerships start operations, it is expected that this accelerated scrapping trend will continue apace.
In the table below, MDST summarises the possible annual growth rates in fleet capacity in the event of vessels of 20+ years or 25+ years being scrapped up to 2027. MDST’s forecast suggests that the net impact will equate to an annual increase of 4.6% and 1.5%, respectively.
As it stands, the most optimistic scenario is to close the year with flat container demand, although it appears more likely that volumes for 2023 will be lower than last year. However, expectations are for demand growth to re-emerge from 2024 onwards.
Based on our most up-to-date forecasts, MDST projects global demand for containerised goods to return to an annual growth rate in the region of 3% by 2027.
Comparing these projections with the current rate of increase expected on the supply side, including scrappage, MDST’s analysis suggests that the liner shipping industry will be faced with an overcapacity issue.
If carriers are to avoid such scenario then the combination of longer routes, more calls, and further scrappaging will have to be utilised to ensure this influx of new tonnage is manageable.
Antonella Teodoro is a senior analyst at MDS Transmodal. “Changing lanes” is a regular Lloyd’s List commentary