Overcapacity is certainly nothing new in the container-shipping industry. Ocean liners have long struggled to maintain the appropriate number of available
container slots for sale in any given trade, i.e. supply, with respect to shipper utilization, which roughly represents demand.
Now, with the ever-increasing size of containerships—both deployed and on order—oversupply has become practically inescapable. Maersk Line Chief Executive Officer Søren Skou told American Shipper in an interview back in March that
container lines need to adapt to what he
sees as “permanent” overcapacity in the market.
Despite the fact that global trade growth is predicted to slow as the rebound from the global recession cools, ocean carriers are preparing to take delivery of more ultra-large containerships than ever before, which will only serve to exacerbate the issue. Shipping lines have already received 20 UCLs—those with capacity for over 18,000 TEUs—and are awaiting delivery of an additional 52 already on order, according to the OECD’s International Transport Forum.
These ships are slated for deployment in the Asia-Europe trade lane, but will cause increases in other trades as vessels currently serving from Asia to Europe are cascaded down to “lesser” trades such as the transpacific and transatlantic.
One way lines have attempted to address the issue of overcapacity is through the practice of slow steaming, which involves adding a vessel to a service and extending transit times between certain ports to increase total rotation time by a full week, sometimes more. Slow steaming, like the UCLs themselves, became popular back in 2009, when the container-shipping industry was reeling from the effects of the global economic slowdown and soaring fuel prices.
The idea behind both is to save on fuel consumption costs, which represent a large portion of post-vessel construction carrier expenses. The newest generation of UCLs are built to be much more fuel efficient than their predecessors, especially at slower speeds, an obvious signal carriers plan to continue the strategy of slow steaming vessels on the major east-west trades even with crude oil prices plummeting.
Brent crude, the global benchmark for oil prices, has taken a beating over the past year, dropping from $115 per barrel in June 2014 to as low as $42 per barrel in August 2015, primarily due to concerns of—ironically enough—oversupply in the market and an economic slowdown in China, the world’s largest energy consumer.
But slow steaming affects more than just the carriers’ bottom lines. It also has a direct impact on shippers in terms of transit times and, subsequently, their ability to manage their supply chains effectively.
The chart below, which utilizes data from BlueWater Reporting’s Historical Transit Time report, compares the average inbound and outbound transit times between Shanghai and Rotterdam, the busiest ports in Asia and North Europe, respectively, on a quarterly basis since 2009.
In early 2009, import and export transit times were relatively close. Average import transit time on services with direct connections from Shanghai to Rotterdam was 29 days, 4.92 days faster than the average export time of 33.92 days.
As slow steaming gained popularity, and was designed into newly built UCLs, transit times steadily increased, with slow steaming in particular causing growth in outbound Asia-Europe transits to outpace their inbound counterparts. The disparity between export and import transit times between Shanghai and Rotterdam reached its peak in the first quarter of 2014, when average westbound transit time hit 45.06 days, 12.84 days slower than the 32.22-day average eastbound time.
Although the most recent data shows the disparity has lessened, it’s clear that carriers are still sailing slower, with present average transits from Asia increasing to the level of those coming back from Europe in 2009. Average time from Shanghai to Rotterdam is currently 34 days, five days slower than in first quarter of 2009, while Rotterdam-to-Shanghai times average 42.6 days, 8.68 days slower compared to the same period.
In theory, slow steaming and ultra-large containerships are supposed to be saving ocean carriers millions in fuel consumption costs. In reality, the introduction of these massive, more fuel-efficient, but slower vessels has only accelerated the trend toward “permanent” overcapacity as described by Skou and others. Many carriers are still struggling to turn a consistent profit and have made repeated attempts to raise rates, but with increasingly ample supply in the market and transit times continuing to grow, is it any wonder that they’ve been largely unsuccessful in doing so?
Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email.
This column was published in the November 2015 issue of American Shipper.