In his speech on October 11 at our 5th annual TPM Asia event in Shenzhen, Alphaliner’s Hua Joo Tan took square aim at the most obvious explanation as to why the largest container lines are rushing to build ultra large container ships (those greater than 10,000 20-foot equivalent container units):
Doing so will knock out weaker players while consolidating the industry among fewer, larger and stronger carriers whose collective dominance will ensure a less competitive freight rate marketplace.
The problem with that scenario, Hua Joo noted, is that container lines are proving to be extremely durable entities. Despite the worst recession ever to hit the industry in 2009, when container lines lost an estimated $15 billion, no major lines went belly up.
If it didn’t happen then, why, with the industry in comparatively better shape today, would it happen today? Yet with the U.S. and Europe both staring at low-growth scenarios for perhaps years to come, what else could explain carriers’ current orders for 162 ships greater than 10,000 TEUs, according to Alphaliner data?
“I don’t thing in the end it will pan out the way some carriers are hoping,” Hua Joo told the audience, nothing that with the current order book set against the likelihood of growth below historic levels, carriers are now staring at three years of overcapacity.
He told them they need to get off the idea of “bigger is better” and make the tough decision to remove capacity from the market- and not just the 5 percent of global capacity that is likely to be taken out by year’s end (versus 2.5 percent today).
Indeed, this may already be happening. Lloyd’s List reported yesterday that a CMA-CGM Turkish shareholder had blocked the line’s plans to order ten 10,000 TEU ships, saying “Such an order at this time would not be in the interests of the company or the container market.”