INDUSTRY WEIGHS CONFLICTING TRENDS ON SUPPLY AND DEMAND
Jacques Saade, chairman of CMA CGM, warned container shipping lines against the risk of ordering too many containerships, while industry analysts disagreed on the medium-term impact on the industry of a potential slowdown in cargo growth.
“We estimate that, by 2005, capacity growth will be higher than demand growth,” Saade told the Containerisation International conference in London. “We say: ‘We have to be careful.’ “
While vessel supply appears to be “insufficient to meet demand” this year Saade said the rush of new vessel orders may change the current market situation.
“Shipowners should not fall into the euphoric state whereby each time demand exceeds supply, as is presently the case, and the rates are pushed upwards, there is a stampede towards ordering bigger, faster and more modern ships far beyond our immediate requirements,” Saade said.
CMA CGM estimates the worldwide fleet of containerships will grow from 5.8 million TEUs at the end of last year to 6.3 million TEUs at the end of 2003 and 6.8 million TEUs at the end of 2004.
“This represents an increase of 9 percent for the year 2003, or 16 percent over the two years of 2003 and 2004,” Saade said. The French carrier believes the rate of growth in vessel supply would appear to exceed demand over that period.
CMA CGM itself has ordered new ships. On Tuesday, CMA CGM and Mediterranean Shipping Co. announced a 10-year agreement to operate a joint transpacific service from the second half of 2004 with new 8,000-TEU vessels ordered from Korean shipyards. Two of the five giant ships will be operated by MSC, two by CMA CGM and one will be chartered alternately by each carrier, CMA CGM said.
Particularly since the beginning of the year, shipping lines and non-operating owners have ordered a large amount of new containerships as capacity tightened on several major trades.
Rogan McLellan, director of liner research at London-based shipbroker Clarkson, reported that the vessel orderbook in March represented 22.5 percent of the current containership capacity — a high proportion by historical standards. But he said cargo volumes are also expected to grow in the next few years.
In March 368 ships were on order, of which 172 are scheduled to be delivered in 2003, 146 in 2004 and 50 thereafter, he said.
The containership charter market is “very tight,” McLellan told the conference, and many containerships are now utilized in an increasing number of Asia/U.S. East Coast all-water services.
McLellan played down the risk of vessel overcapacity in the medium term and predicted “a shortage of capacity in the next two to three years.”
Ben Hackett, executive managing director of Global Insight, a forecasting organization, cautioned there is much uncertainty in the global economy, “daunting geopolitical risks” like those associated with Iraq and terrorism, and falling consumer confidence in the United States.
He told the conference the growth of U.S. liner trades would slow down this year, when compared to last year. In particular, the container trade between China/Hong Kong and the United States is expected to grow some 12 percent this year, as compared to about 19 percent in 2002, he predicted.
Hackett said there is “some room for optimism” for liner shipping. The booming Chinese trade in particular “is driving optimism.”
But the analyst suggested the Chinese cargo boom might be at the expense of other markets. The growth in the Chinese container trade is explained by “a tremendous shift of manufacturing capacity” from other Asian countries and from countries like Mexico, he explained. The shift has severely hit U.S. trade with Mexico, including the activities of “maquiladoras” on the Mexican border, Hackett noted.
The analyst also cautioned: “there is too much dependence on the U.S. locomotive” for the growth of international trade.
“Asian exports rely on U.S. imports,” he said. “We doubt that the 2002 growth is sustainable in today’s uncertain economic and political climate,” Hackett said.
Yet, shipping lines in the transpacific trade have warned shippers that vessel capacity will be tight during the peak season this year.
In early April, Orient Overseas (International) Ltd., the parent company of OOCL, said cargo volumes might exceed available ship capacity during this year’s peak season.
