Tumbling shipyard prices and easy credit are driving the recent surge in container ship orders at a time of industrywide overcapacity, according to consultant Drewry.
This suggests carriers are no longer motivated by supply and demand fundamentals, the London-based company said.
Even when the most recently contracted vessels are delivered in 2016, Europe and the U.S. are still likely to be climbing out of recession, “which means capacity in East-West trades will continue to outstrip demand.”
With shipyard prices plummeting, smaller carriers finally see an opportunity to gain a competitive edge over the top three lines — Maersk Line, Mediterranean Shipping Co. and CMA CGM — “and have not been slow to take advantage.”
China Shipping Container Line recently ordered five 18,400-TEU ships at $136.6 million each, 26 percent less than Maersk Line paid for each of its 20 18,000-TEU vessels contracted in 2011, though the Danish carrier’s ships have different specifications, which means the comparison is not exact.
Getting credit for the new generation of large container ships is still not difficult “despite the vessels not always being ordered to meet demand growth,” Drewry notes in its latest container weekly insight.
With many carriers state-supported in some ways, banks appear to view their loans as being as good as low-risk “sovereign debt” even as the current surplus capacity is destroying profitability through declining freight rates.
The deteriorating market makes it increasingly difficult for carriers to maintain cash flows required to service ship mortgages. Cash-rich non-operating companies such as Seaspan, Costamare, Technomar and Capital Ship Management expect the situation to worsen, prompting their return to the market “in a big way.”
This means carriers facing problems in funding ship orders can boost their capacity through leasing and chartering.
“The container industry, it seems, remains dominated by optimists,” according to Drewry.