The capacity management shippers have been expecting as carriers try to balance supply growth and increasing operating costs with slowing demand has arrived, with the 2M Alliance outlining plans to cancel 19 sailings in total on the Asia-Europe and trans-Pacific trades over Chinese New Year.
Carriers among the other two alliances are expected to announce their own blanking programs in an industry struggle to manage soaring first-quarter capacity that SeaIntelligence said will rise by 12.3 percent year over year, the highest recorded first-quarter growth.
IHS Markit has forecast full year 2019 fleet capacity growth to be 2.6 percent, but much of the new ship deliveries will be in the first quarter, taking the Asia-North Europe deployed capacity to 3.61 million TEU.
In a bid to balance supply and demand over the slack Chinese New Year period, in Week 6-8, 2M Alliance carriers Maersk Line and Mediterranean Shipping Co. will blank nine sailings on Asia-North Europe/Asia-Mediterranean routes and a similar number of Europe-Asia eastbound sailings. Ten sailings on Asia-US West Coast routes would be canceled.
There is nothing new in carriers making February-March sailing cuts, but SeaIntelligence pointed out that the 12.3 percent capacity growth rate far exceeded any reasonable expectations of demand growth — IHS Markit expects demand for 2019 on Asia-North Europe to reach 5.5 percent — and without heavy cuts in sailings, carriers would risk freight rates falling to unsustainable levels.
Alphaliner also highlighted the ongoing struggle of container shipping companies to balance supply with demand that will continue to drive both the freight and the charter markets.
The analyst said newbuilding capacity due to be introduced in 2019 would be tempered by expected slippages in deliveries and scrapping. An expected rush to retrofit part of the current fleet with scrubbers before the new International Maritime Organization (IMO) sulfur cap took effect in January 2020 would also result in a reduction of available tonnage during the year.
The capacity discipline variable
Both SeaIntelligence and Alphaliner noted that much will depend on the carriers’ ability and willingness to maintain capacity discipline in the face of mega-ship deliveries on Asia-North Europe that would cascade larger vessels to other trades. Alphaliner said 46 mega-ships were planned for delivery in 2019, which meant forced cascadings were bound to continue growth in the large ship segment of 10,000-23,000 TEU. Growth was expected to be 11 percent.
SeaIntelligence said the trans-Pacific has long been a favorite trade for offloading excess vessels from Asia-Europe, partly as the large size of the trade, which has around 465,000 TEU of weekly capacity versus 420,000 TEU per week on Asia-Europe. However, with the round trip sailing times on Asia-US West Coast routes being half that of Asia-Europe, any cascaded weekly capacity is actually doubled.
The conclusion was that carriers would face a rapidly deteriorating supply-demand balance for the first and second quarters unless they started culling capacity in the very short term.
“With four-five weeks left before Chinese New Year [CNY], we expect carriers to announce considerable CNY blank sailings programmes in the coming weeks, lest they want to repeat the disasters of first half 2018,” SeaIntelligence wrote in its latest weekly newsletter.
But for now, as the new year moves into its second week, spot rates on Asia-Europe are holding on to the gains made in late December. According to the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index, the rate from China to North Europe remains unchanged at $996 per TEU, a level that is 12 percent up on Week 1 of 2018. Weekly rate movements are tracked at JOC’s Shipping & Logistics Pricing Hub.