1 May 2024 (Lloyd's List) - THE expected glut of capacity entering the container shipping market in 2024 and 2025 was initially thought likely to drag on box line earnings over the next two years, but now appears to be something of a blessing in disguise following the widespread rerouting to avoid the Red Sea.
“If something like this had happened in 2019, we would not have had the ships to transport the goods,” Hapag-Lloyd chief executive Rolf Habben Jansen said in an online presentation.
“People say supply and demand should be in balance, but that is a wrong concept as any disruption immediately then causes massive disruptions. Today we are in a somewhat better position.”
The next two years would see more supply growth than demand growth, he added.
“But if you look at it today, we don’t have enough ships to sail them normally around the Cape. We are speeding up, not sending ships to dry dock and everything that can sail is sailing.”
Effective capacity remains constrained, despite the record new vessel deliveries, said analysts at Linerlytica.
“The containership fleet capacity currently stands at 29.4m teu and will reach 30m teu by the end of June this year,” Linerlytica said.
“Although the nominal fleet growth has reached 10% year on year, effective capacity on the four main east-west trades has grown by only 3% this year as the vessel diversions to the Cape of Good Hope route due to the Red Sea crisis has absorbed most of the new capacity.”
At a global level, effective capacity on all 33 inter-regional linehaul routes tracked by Linerlytica had shrunk by 4% year on year, with reduced capacity deployed on the Red Sea/Middle East/Mediterranean routes dragging down the overall average despite the growth in the four main east-west trades.
Sea-Intelligence chief executive Alan Murphy said that the Red Sea crisis had come as something of a “lifeline” for carriers, as it had soaked up capacity and removed the “overcapacity challenge”.
“We don’t know how long that will last,” he said. “In previous crises, there has generally been a consensus that global trade is not political and the safe navigation of seas is generally safe. It is concerning that shipping is now a political target.”
But even after a resolution, it would take time to readjust networks.
“It has to be a permanent situation of safety before we see shipping lines go through again. There is also not such a necessity to go back. We do not have the shortage of capacity we had in the pandemic, so if and when we have a long-term resolution to the crisis it will take six to 12 months before we have a stable situation of services running through Suez again.”
Habben Jansen, however, was more optimistic about the speed at which services would return to normal.
“In reality, you should be able to do that in one round trip, which is 14-16 weeks,” he said.
The main concern was the safety of crew, which was more important than a 10-day delay to cargo, he added.
But even in the case of a swift resolution to the crisis, which looks increasingly unlikely, and a return to normal services via the Suez Canal, the new capacity entering the market should still be manageable.
“You have to look at the orderbook today very differently to what it was in the crisis in 2008-2009,” Habben Jansen said.
“The percentage is lower, the fleet is older and we need some capacity to deal with the disruptions. Scrapping is exceptionally low so we need to catch up there, and we have the new CII rules that will also force us to sail slower in the second half of this decade."
“There may be some time when there will be overcapacity, but that has always been the case. But it is a very different situation today.”
Murphy noted there was no hard and fast rule that supply and demand had to be in balance, but warned that overcapacity often led to freight rates tumbling to unsustainable levels, a point also made recently by Habben Jansen.
He also pointed to the fact that in the second half of 2023, ships were running full and cargoes were being rolled.
“And yet we saw rates that were at unbelievable and unsustainable levels,” he said. “That made no sense.”
But Murphy warned that the dynamics of the sector played a role in driving these low rates.
“This is the only industry that can only be profitable when utilisation levels are over 90%,” Murphy said.
“If this could be fixed there could be room for buffer capacity, which was a phenomenal thing when this crisis hit. If we had had the buffer capacity in the pandemic, it would have played out differently.”
