Record-high delivery of boxships in 2013, but fleet growth may
CONTAINERSHIP deliveries are forecast to hit an all-time high this year with a projected 1.7 million TEU coming on stream. However, with so many variables that are often not taken into account, the actual increase in the active global containership fleet this year could be significantly lower.
Based on data compiled by Clarkson Research Services the global containership fleet at the end of 2012 stood at 16.23 million TEU.
According to the group's current estimates the fleet will grow by roughly seven per cent to 17.36 million TEU by the end of this year. This represents an increase in tonnage of 1.13 million TEU - well short of the 1.7 million TEU forecast by other parties. However, Clarkson's figures do take into account a number of factors, including its own estimates on delivery slippage and scrapping, as this writer understands...
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For the purpose of this article today we will assume a worst-case scenario [from the supply-demand balance point of view] of an influx of 1.7 million TEU entering the market in 2013. Based on the fleet size at the end of 2012 this represents an increase in fully cellular containership capacity of 10 per cent.
This is measured against demand growth forecasts ranging anywhere between three and six per cent. Again, let's assume a worst-case scenario of three per cent growth in global shipping demand.
So in our worst-case scenario, supply will grow by 10 per cent against demand growth of just three per cent. This would truly be devastating if accurate. Shipping lines are already allowing rates to freefall and even based on the recent announcements on rate increases this month, the carriers appear willing to undercut their competitors.
If there is indeed a seven per cent surplus in terms of supply growth this year, then one would imagine that the current rate wars will only get uglier as the year progresses.
But the truth of the matter is not quite as daunting.
Shipping lines, as was reported recently in Hong Kong Shipping Gazette, are scrapping vessels at a record pace to date, and Alphaliner expects that the full year figure for vessel scrapping could reach 450,000 TEU, based on the current demolition rate.
This would also mark a record high for ship demolitions, to match the record high for vessel deliveries.
So if we assume an increase in container shipping supply of 1.7 million TEU, then we remove 450,000 TEU we are left with an increase in shipping capacity this year of 1.25 million TEU. This brings our worst-case scenario of a 10 per cent increase in shipping supply down to eight per cent.
We are now left with a supply growth overhang of five per cent - again this is measured against a worst-case scenario in terms of demand growth.
The next factor we can look at is vessel lay ups. Idle tonnage cannot be included in the active vessel fleet for the simple reason that these vessels are not active. Therefore, their non-active status equates to a removal of capacity, even if only temporal.
To date the idle containership fleet stands at 634,000 TEU, according to the latest figures from Alphaliner.
A number of new services are being announced by the lines, which has seen the idle fleet diminish somewhat of late. So for the time being, let's round this number down to 600,000 TEU.
In removing a further 600,000 TEU from the equation we have now effectively brought the increase in active shipping capacity in 2013 down to just 650,000 TEU.
This brings our capacity growth figure down from eight per cent, after scrapping, to just four per cent for the year. Thus in a worst-case scenario where shipping demand grows by just three per cent, then the supply overhang is just one per cent.
Add this to the fact that shipping lines will continue to employ slow steaming in a bid to reduce any further supply surplus in the market, then we are looking at a very balanced supply and demand situation this year - at least in terms of growth rates.
Last year, however, supply growth did outpace demand. According to Clarkson's figures demand grew just 3.3 per cent against an increase in fully cellular container shipping capacity of roughly six per cent - a supply overhang of 2.7 per cent.
So what does all of this mean? Well let's first look at how the carriers performed last year, in spite of the supply surplus.
The top 21 container shipping lines collectively lost a total of US$239 million last year, which is actually not that bad considering the market situation.
The year before these same carriers lost approximately $5.9 billion.
Certainly 2012 saw a dramatic turnaround, even if the industry as a whole did not return to the black.
A number of individual shipping lines did, however.
CMA CGM managed a profit of $989 million, while Maersk Line came away with earnings of $483 million. Hong Kong's OOCL was another, posting a profit of $230 million.
Also rounding out the year in profitable territory was Wan Hai at $94 million, Hapag Lloyd at $34 million, SITC at $32 million and CCNI at $11 million.
Clearly, it is possible to still produce good results in a challenging market.
Given that this year's supply and demand, when extenuating factors are taken into account, looks as though it could be quite even - and therefore will likely leave the industry in a similar position to last year - there is no reason for there to be disastrous losses like what we witnessed in 2009 and 2011.
Of course the pace of scrapping could slow and carriers may look to activate more of their idle tonnage in the coming months, which would seriously alter the above figures.
But then again, demand could grow at a greater rate than three per cent. And in fact Clarkson Research Services predicts it could reach as high as 5.8 per cent.
It is truly difficult to know what will happen exactly. This is the key difficulty to any forecast. The future often presents us with plenty of surprises.
What we can say, definitively, however is that the raw data on supply and demand should not cause too much alarm. There are many factors that can impact the effect these numbers will have, even if the estimates are 100 per cent accurate.
The key, as is always the case, is how the shipping lines not only manage their capacity going forward, but how they conduct themselves on pricing. Do they go for market share at any cost? Or do they accept the difficult market environment and take steps to promote stability instead?
Once we have some answers on these two points, then we can more accurately begin to talk about what kind of year it is going to be for the container shipping industry.
