Analysts warn of containership oversupply

   Two shipping analysts are warning of containership over capacity in commentaries released today.
   In the latest edition of its Container Insight Weekly, the London-based consultant Drewry said it believes the current orderbook of 8,000-TEU to 10,000-TEU contanerships is excessive.
   Meanwhile, Johnson Leung and Benjamin Wang of the investment bank Jefferies said, “More new capacity could be available to match or even outstrip the demand growth” for the Asia-Europe trade, “which may continue the container shipping segment’s struggle to turnaround in 2014.”
   Drewry said 55 ships in 8,000-TWU to 10,000-TEU range are being delivered this year, 40 are on order for 2014 and 45 are coming in 2015. At the same time, “around 20 existing vessels in the size range are due to become surplus to requirements once Maersk Line’s, MSC’s and CMA CGM’s Asia/North Europe services are merged in 2Q 14” as part of the P3 Network.
   It also estimates that 44 larger ships, “averaging 14,638 TEU are due for delivery next year (further postponements excluding), which will most probably lead to the same number of vessels between 8,000 TEU and 10,000 TEU being displaced.”
   Drewry said 30 ships in the 8,000-TEU to 10,000-TEU range will be needed by the P3 alliance for five transatlantic services, and it suggests its competitors will also have to upsize their vessels in order to compete with the economies of scale offered by the larger ships.
   Drewry said the average size of ships in the North America trade to North Europe is 4,000 TEU; on the trade lane to the Mediterranean, the average ship size is 4,800 TEU.
   Last week, the G6 Alliance announced plans to expand into the transatlantic and Asia-to-West Coast trade, but has not said whether it will rationalize trade.
   “Ignoring this possibility, the supply of vessels between 8,000 TEU and 10,000 TEU looks set to well exceed demand growth … so where the excess will be deployed is intriguing,” said Drewry. It noted that between them, three major players in the South America trade — Hamburg Sud, CSAV and CCNI — have 21 ships with capacity in the 8,000 to 10,000-TEU range on order.
   “The opening of the Panama Canal’s expanded locks at the end of 2015 will open up many new possibilities, although, here again, nothing has yet been confirmed, so envisaging anything would just be conjecture,” Drewry said. “It is highly likely that many Asia/ECNA services will be upgraded from the current 5,000-TEU restriction in 2016, however.”
   Jefferies said, “Container shipping’s capacity growth will accelerate to 7 percent in 2014, from 6 percent in 2013, since the container liners have pushed back some new capacity originally scheduled for delivery at the end of this year.”
   The firm also emphasized that “the mix of new capacity would be heavy on the larger ships. Fifty seven vessels of 10,000 TEU or above (VLCS: Very Large Container Ships) will be delivered in 2014, compared to just 36 delivered in 2013. Over 75 percent of these VLCSs may come in before August end, which means these VLCSs will have an impact on most of next year — particularly the peak season between June and October.”
   Jefferies said container shipping companies will likely use the incoming VLCSs to upgrade their Asia-Europe (AE) services currently still employing 7,000-TEU to 9,000-TEU vessels.
   “The most noticeable potential upgrades in AE could be Maersk’s 18,000-TEU vessels and Evergreen’s first 13,800-TEU vessels, which could double the weekly capacity of one of their AE services, in our estimate. Weekly capacity in AE has not changed much over the past 12 months, as container liners discontinued a few weekly services while upgrading the average vessel size on the remaining ones. We believe AE capacity will start to grow again on expectation of stronger volume growth particularly in the first half of 2014.
   Jefferies said AE westbound volume growth could reach 5 percent, year-over-year, in  2014, with about 7 percent, year-over-year, in the first half. During the second half of the year, volumes will grow by 3 percent to 4 percent, year-over-year.
   “Further out, capacity growth for 2015 has become much higher. The projection for capacity growth for 2015 was less than 2 percent at the beginning of 2013. But since then, large amounts of new capacity has been ordered, as shipping companies seek further cost efficiencies in the newer and larger vessels. As a result, capacity growth for 2015 has been lifted to also 7 percent, year-on-year. Investing in new capacity while the industry is making losses due to over capacity is made possible with the liquidity available in the economy and the involvement of the sovereign interests,” said Jefferies.
   Last Friday, the spot freight rate from Asia to Europe, as measured by the Shanghai Container Freight Index, fell to $987 per TEU from $1,000 per TEU a week earlier. Jefferies said  $750 or $775 per TEU general rate increases announced last month by many carriers due to go into effect on Dec. 15 or 16 “should bring some increase on seasonal volume pick up and carrier’s collective capacity discipline, which typically shows when freight rates are low.”