Hyundai Merchant Marine now has the industry’s third-largest orderbook behind Cosco Shipping and Mediterranean Shipping Co. as it searches for yards to build 20 new container ships, 12 of them in the 20,000-TEU class, taking a large step towards reaching the goal of a 1 million TEU fleet capacity.
South Korea’s biggest container line announced today that the 20,000-TEU vessels in the long-awaited order would be deployed on the Asia-Europe trades and the eight 14,000-TEU ships would work on routes to the US East Coast. The carrier sent out requests for proposals to shipyards today and expects the vessels to be delivered by 2020.
An HMM official said in a statement that the new ships would enable the carrier to secure a more competitive fleet through greater economies of scale, as well as meet new global emission control rules that will be implemented in 2020.
“Through the acquisition of the most technologically advanced mega-containerships, we can strengthen cost competitiveness and react rapidly to the international environmental regulations,” the HMM spokesperson said.
The top global operators have shown restraint when it comes to the orderbook. Of the container carriers with the largest orderbooks, only six are among the Top 10 carriers globally. Some carriers, such as MOL and Hapag-Lloyd, have had clear orderbooks for some time. The TEU volume of ships on order as a percentage of the active fleet is down — when taking into account HMM's orders is 14 percent — from 20 percent in 2015, according to IHS Markit ship data.
Container shipping capacity is something shippers pay close attention to as the supply-demand balance has a direct impact on freight rate levels. The global container fleet is projected to expand 4.7 percent this year, just below the 4.9 percent increase in global trade, according to IHS Markit.
Spot rates are one barometer of how demand is matching up to capacity. Asia-Europe spot rates on the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI) are at a 12-month low of $622, falling six straight weeks since Chinese New Year to nearly the same level as the rate from Shanghai to the Mediterranean, which historically has been lower than the rate to North Europe by a few hundred dollars. The JOC Shipping & Logistics Pricing Hub that tracks weekly rate movements of the SCFI shows that the Shanghai-Rotterdam spot rate has fallen by 33 percent in the past six weeks, $300 per TEU below the freight rate on Feb. 23. The year-over-year comparison is not much better, with the current rate 26 percent below that recorded on April 7, 2017.
Container transport prices on the Asia-Mediterranean trade are slightly less volatile, but the rate this week of $616 per TEU is still a 22 percent decrease on that of Feb. 23 and 25 percent down year over year.
Data from IHS Markit, the parent company of JOC, show that container volume growth on Asia to North Europe and the Mediterranean will strengthen through 2018, increasing by 4.5 to 4.9 percent compared with 2017. However, demand on Asia-Europe in the second quarter is forecast to grow by about 4 percent, less than half the 8.8 percent increase in capacity SeaIntel is predicting in the trade. Even though this is the slow season, limited withdrawn sailings, declining rates, and excess capacity suggests carriers on the trade are prioritizing market share.
In its recently released container shipping market outlook report, AlixPartners said there were opportunities for carriers to significantly improve performance through better management of areas actually within their control. Ongoing fleet consolidation has created a situation where the five top carriers will now control almost two-thirds of global capacity, and this realignment of ownership has created a unique opportunity for the industry to demonstrate a level of price discipline that has been lacking for years, the report noted.
Another opportunity was in improving cost savings from fleet consolidation. AlixPartners said major opportunities remained for fleet operators to make dramatic cuts in redundant expenses and to modernize operations.
But to realize these opportunities, the AlixPartners report said ship orders had to be reined in. “It is imperative that carriers curb their voracious appetites for new ships. New orders slowed, and deliveries were deferred during much of 2017, but in September, the buying spree resumed in earnest, thereby ensuring the continuation of the current margin-crushing balance of supply and demand unless scrappage activity accelerates dramatically,” the report said.
How the container shipping capacity on Asia-Europe is managed will have a significant influence on the supply-demand balance that determines freight rates. Alphaliner said what could possibly mop up some of the capacity being deployed on the Asia-Europe trade was the revamp of service networks by all three alliances. THE Alliance, Ocean Alliance, and the 2M Alliance are set to boost the capacities of existing services on the route with the phasing in of various newbuildings of 14,000 to 22,000 TEU.