Annual Review & Outlook 2013: China Shipping (North America) Holding

Zhang BingAs you know, each year has different challenges, but our mature industry is still attempting to define itself in our 21st century. Two main considerations are capacity and deployment of vessels.

Vessel capacity on a macro basis will be dictated by world GDP as well as world container growth. Although there’s still much capacity to be delivered, new order volumes seem to have significantly decreased recently, which will hopefully give volume a chance to catch up with capacity.

It appears new ship delivery will decrease in 2014 and 2015, which should help. Unfortunately, the declining cost of new vessels motivates carriers to “bargain hunt” for larger vessels that deliver lower slot costs and improved fuel efficiency.

As mega-vessels replace midsize ships, it’s more difficult to find homes for those smaller vessels. The only solution is to speed up scrapping of even smaller vessels. That affects current asset values, which negatively impacts carrier “balance sheets.”

Vessel capacity on a micro basis forces carriers with equal-sized vessels to develop meaningful relationships. Like-matched vessels provide consistent space on a weekly basis. If one carrier has 18,000-TEU vessels, they will seek partners with like-sized assets.

In the trans-Pacific trade, competition among coastal ports continues. As East Coast ports develop ability to receive larger vessels, how successful will they be? Will West Coast ports and U.S. railroads react to new factors of competition? When the Panama Canal expansion is completed, will carriers be able to absorb new pricing structures? Suez Canal service from Asia to East Coast continues to grow.

One definite is a shipper will make the final decision on which coast his cargo uses and it will be on a cost vs. service basis.

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