Container shipping lines face another year filled with “unpredictability and volatility,” as efforts to reduce overcapacity won’t be enough to free the industry from the “vicious cycle” of fluctuating rates, said Hua Joo Tan, executive consultant at Alphaliner.
The ability of carriers to inject capacity on short-notice, exacerbated by weak demand and carriers’ ambition to grow market share, has shortened the rate cycle historically lasting four to six years to six to 18 months, Tan said Wednesday at The Journal of Commerce’s TPM Asia Conference in Shenzhen, China. With 1.41 million 20-foot equivalent units of capacity to be introduced by the end of the year and another 1.7 million TEUs coming online in 2013, short-term efforts, such as idling and slow-steaming, won’t be enough to make needed structural changes.
“My prediction for next year is that we will see compression of the cycle,” Tan told an audience of more than 500. “The lows will be even more severe than in the past, and the highs will be extremely short-lived.”
The share of idled capacity of the entire fleet with rise from 4 percent to 6 percent over the next 12 months, but there will still be excess space of roughly 10 percent, he said. The reactivation of idled capacity has made rates more volatile, and Tan expects to see even more capacity brought back into the market over the next 12 months.
The one rare piece of goods news for the industry is that carriers are scrapping more vessels. But even with 242,000 TEUs in capacity to be scrapped this year, the ratio is still 1 to 4 in terms of new capacity
to be added. The age of scrapped ships had fallen, with the average scrapped vessel being only 25 years old. Tan said in the last six months there has been an increased scrapping of vessels aged between 15 and 18 years.
About 85 percent of idled ship capacity has been chartered, leaving only about 15 percent truly not in the market. That has pushed chartered rates to a historic low.
Despite moderate volume growth seen this year and expected in 2013 — estimated at 4 percent to 6 percent — “carriers’ ambition to growth market share has not diminished in any way.” Carriers haven’t been able to curb their hunger for more capacity, either, he said.
“Carriers will continue to shoot themselves in the foot,” Tan said.
He said carriers will undercut each other after the November generate rate increase is implemented on the Far East-Europe route if load factors remain weak. The period isn’t a good time to push a GRI because volume is historically weak in that period, Tan said.
Talk of carrier consolidation is premature, even though Japan doesn’t need three major carriers. Investors and governments’ ill-advised decision to pour money into ailing carrier will keep consolidation at bay.