Based on trends from the last two years,
growth in containership capacity will continue to outpace demand in the next
few years despite record ship scrapping so far in 2016, according to a recent
report from the Boston Consulting Group.
undergone
consolidation on a massive scale in the last 18 months - China’s two state-run
container carriers COSCO and CSCL have merged, CMA CGM of France purchased APL
parent Neptune Orient Lines, Hapag-Lloyd is in talks to merge with United Arab
Shipping Co., the bankruptcy and likely break-up of South Korea’s largest line
Hanjin Shipping, and most recently, the “Big 3” Japanese carriers - NYK Line,
MOL and “K” Line - have agreed to merge as well.
Based on trends from the last two years, as
well as compound annual growth scenarios for container shipping demand and
growth in vessel supply, analysts with the BCG projected container demand will
grow between 2.2 percent and 3.8 percent annually from 2015 to 2020, compared
with a historic average of around 5 percent.
Container capacity, on the other hand, has
expanded rapidly over the past few years and accelerated to an 8.6 percent
growth rate in 2015, a year in which demand grew just 1.9 percent due to weak
global manufacturing output caused primarily by economic slowdowns in China and
the European Union.
With the current supply-demand gap in the
container industry estimated at 7 percent, the BCG report projects the gap
between global trade volumes and containership capacity will increase to
between 8.2 percent to 13.8 percent by 2020.
“By the end of 2020, oversupply in vessel
capacity will stand at 2 million to 3.3 million TEUs - equivalent to some 90 to
150 or more Triple E class ultra-large container vessels,” BCG said in its
report. “The year 2016 seems ready to set a new record for a reduction in
capacity: seven months of scrapping (January through July) affected roughly
300,000 TEUs, and the age of vessels at their scrapping - 20 years - dropped to
a two-decade low. However, it’s uncertain how much more reduction is to come.
“Industry players are in a race for lower
slot costs to ensure competitive advantage,” it noted. “The bigger, newer, and
more efficient the vessel, the lower the slot cost, which is why companies want
to invest in larger vessels.”
Should this projection hold true, it could
be a very difficult next few years for the container carriers. Industry
analysts have already projected combined losses of up to $10 billion for the
industry in 2016 alone, and if the supply-demand imbalance worsens, rates will
likely continue to fall, making it nearly impossible for lines to turn a
profit.
"The supply-and-demand fundamentals of this industry appear to
indicate the emergence of a new normal," said BCG. "Before 2015, the
industry’s major challenge was overcapacity. During 2015, demand proved weak,
and trend analysis suggests that this lower demand will characterize the
industry. In today’s challenging environment, carriers have to do even more to
survive, never mind thrive. We believe they will need to craft increasingly
sophisticated battle plans that enable them to further improve their own
performance, so they can successfully 'sail in strong winds.'"
Source: American
Shipper. 07 November 2016
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