Despite the heavy losses container lines are seeing in 2011, they are in much better shape than they were in 2009 because the oversupply of vessel capacity is less than perceived and because most still have positive cash flows, according to Seaspan’s two founders.
“Effective supply is much less than the overall supply that most people use,” Seaspan CEO Gerry Wang said.
The delivery of new ships over the next three to four years will add 25 percent more capacity to the global container fleet, which averages out to a growth of 7 to 8 percent a year. “That matches up with the growth trajectory,” Wang said.
Many of the ships owned by KG funds are chartered to container lines on shorter-term leases that will expire in 2012 or 2013. Because these ships weren’t built with technology that enables them to steam at slow speeds and reduce fuel consumption, they are less likely to be chartered out again. “Those ships will probably have to be laid up as they come off their leases,” Wang said.
That means the effective capacity supply will grow at a maximum rate of 3 to 4 percent a year over the next two years, putting supply and demand roughly into balance and tilting the balance back in favor of carriers. That’s assuming, of course, demand is there for the new capacity.
“It’s a tug of war.” Wang said. “2010 was all about the liner majors having the upper hand. Last year, the carriers made too much money. This year, obviously the forwarders were united and tried to squeeze the carriers. It’s like this all the time. Next year, the carriers will do more to squeeze the shippers.”
Despite carrier losses this year, Seaspan isn’t worried about their overall financial condition. “Carriers are losing money but still have positive cash flow,” said Graham Porter, Seaspan’s managing director. “We should remember that the industry made $20 billion in 2010. This year the collective losses are maybe $3 billion to $4 billion. People’s perception is that they are losing money, but the ability to absorb losses is a lot better than in 2009, because most of them don’t have big capex programs and a lot is already financed.”