With the global shipping industry facing overcapacity, a decision over deployment is hardly an idle question for carriers
Alphaliner analyst Hua Joo Tan says a heavy orderbook of mega-ships will give ocean container lines “no respite from the lack of supply-demand equilibrium” for the next two years. But carrier officials say they are looking at ways to restore balance, and profitability.
Executives at Maersk Line, CMA CGM and Hanjin Shipping told The Journal of Commerce TPM Asia conference in Shenzhen this month they are looking at various ways of matching operations more closely to shipping volume. And deployment of huge new vessels, Hanjin’s Christian Sur suggested, may not be a sure thing.
“We will have to look at the market and ask ourselves, are we going to deploy these vessels? That decision is not without cost — we would have to pay the shipyards to keep these ships,” said Sur, a vice president for key accounts at the Korean carrier. “But this may be the lesser of two evils.
“At the moment, the conditions don’t look good for the demand to need these ships. So we may not need to actually deploy them if the market is not that strong,” Sur said.
Hanjin this year ordered five vessels capable of carrying 13,000 20-foot equivalent container units, part of an industrywide orderbook that now equals about 30 percent of the world’s container fleet. That’s down from 55 percent four years ago, according to Alphaliner, but presents a looming problem in a container shipping business that had what the research analysts said was 12 percent overcapacity at the start of this year’s peak shipping season.
Several container line executives say they are considering whether to lay up vessels in a search for equilibrium. “If we have to do it, we will do it, yes,” CMA CGM Executive Officer Rodolphe Saade said at TPM Asia. Saade said capacity already is withdrawing from the toughest markets. “Is it taking place enough? No,” he said. “More capacity needs to come out.”
CMA CGM has upgraded some orders of 13,800-TEU ships to 16,000 TEUs and is reportedly in the market for more large ships. “There is a need for such vessels,” Saade said. “Size is of importance.”
But he said there would be no place in major trade lanes for smaller ships, and presumably the carriers that operate them. “We believe these vessels should get out. You are going to see in these trades the carriers who will deploy bigger vessels. The others are going to disappear or focus on niche markets.”
Tim Smith, North Asia CEO of Maersk Line, which rocked the industry this year with its order for 20 18,000-TEU vessels, said shipping lines are wary of discussing capacity plans publicly after an outcry from shippers over widespread industry layups in 2009 led to an inquiry by the Federal Maritime Commission over allegations of collusion.
But he said Maersk, the world’s largest carrier, is continually looking at how to provide strong services while making a financial return. “Trying to get the right balance in these two objectives is not easy. We are trying to prioritize, and we will look at this very carefully. There may be some periods of lower demand where we may trim some capacity in some services,” he said.
Hanjin’s Sur said the carrier already is planning for “slack season” capacity deployment. “We will have to consider winter capacity management.” That means, he said, “suspending some services to cope with the traditional slowdown after the holiday shipping season.”