Analysis: Fewer strings to carriers’ bows

Analysis: Fewer strings to carriers’ bows There are two patterns conspiring to make life miserable for carriers these days: dropping demand, and excess capacity made worse by new ships being delivered this year.
   The interesting thing is that for the carriers that survive, those two trends will shape services going forward. Take for example, the recent announcement by Hamburg S'd, CMA CGM and Zim that they were knocking their two-string Mediterranean/East Coast of South America service down to one string, but upping the capacities of the vessels involved in the service.
   The fact that demand is way down this year gives the lines a perfectly good reason to withdraw capacity, but it also serves as a way to introduce larger vessels into services. Bigger ships mean more weekly capacity per loop. Bigger ships also mean better productivity per sailing (as long as the ship is full, that is). So as long as the ships aren’t too big for the trade, larger vessels give carriers cost advantages over carriers using smaller vessels.
   In a down market such as this, these cost advantages may not seem so noticeable. In fact, plugging bigger vessels into services in this environment may attract double takes. But the long-term idea for carriers is to grow business in specific trades so that when demand rebounds, those carriers occupy a more dominant position than they did before demand dropped. Much as investors are told to double down when the stock market is bear and share prices low, carriers with the ability (re: cash flow and large vessels) to take the short-term pain will likely be rewarded when the roller coaster starts rising toward the next hill.
   The Hamburg S'd example isn’t the only one, either. Multi-string services have been condensed on nearly every trade in the past six months. It will be interesting to note later this year who has survived and who will be the better off for weathering this perfect storm. ' Eric Johnson