In an effort to ascertain the possible far reaching consequences of the influx of new giant containerships on order
In an effort to ascertain the possible far reaching consequences of the influx of new giant containerships on order, should they be delivered as originally planned in 2010, BIMCO has made some calculations on the basis of a few assumptions regarding demand, trading areas and transportation capacity. The main result of that analysis shows that there appears only to be cargo volumes for one out of five new giant containerships due for delivery in 2010.
Current outlook for global container transports point in the direction of a positive volume growth in 2010 of 5% year-on-year on the back of higher demand for container transports as a result of a slowly recovering global economy. In the calculations below it is assumed that this global growth rate can be applied directly to the Far East - Europe trade and the giant containerships.
Giant containerships are almost exclusively employed on the Far East – Europe - Far East trades. Even though the active fleet of these ships have an average official capacity of 11,800 TEU, this analysis takes the conservative approach and estimated each vessel to carry 10,000 TEUs. In the present market, a roundtrip (Far East – Europe – Far East) takes 70 days, resulting in 5.2 roundtrips per annum. This translates into one giant container vessel, with 5.2 roundtrips a year, carrying 52,000 TEU per annum on the front haul trade from Far East to Europe.
It is moreover assumed that laid-up/idle tonnage will not be re-activated and ships will continue to slow- or super-slow-steam. It must be remembered that the recent increase in freight-rates are influenced by these factors, thus creating a supply-demand balance that is artificial and could be severely and negatively impacted should idle ships be re-activated and speed increased. As of 1 March, around 500 container ships with a capacity of 1.2 million TEU, equal to 10% of the total fleet, were idle, and another 2-3% of tonnage equivalent fleet was taken out of the market as a result of slow-steaming or super-slow steaming.
As many as 61 giant containerships with a capacity of more than 10,000 TEU are scheduled for delivery in 2010, according to Clarksons. This analysis only focuses on these vessels and has not included the vessels with a carrying capacity of less than10,000 TEU that are due for delivery in 2010.
In other words, we have assumed that the present market condition reflects balance in supply and demand, and we have wished to review - in isolation - the growth in cargo volumes needed to accommodate the capacity growth created by the giant containerships alone. The influx of new and smaller tonnage will just add to the pain.
According to the European Liner Affairs Association, 13.5 million TEU were transported from the Far East to Europe in 2008. That number went down to 11.5 million TEU in 2009 - a negative growth rate of 14.8%. A positive volume growth rate of 5% is forecast on the back of higher demand for container transports in 2010. Applied directly to the Far East - Europe trade - the transported volume is set to go up to 12.1 million TEU or an absolute increase of 575,000 TEU.
To satisfy an increased front haul demand of 575,000 TEU per annum, 11 new giant containerships need to be employed under the given assumptions.
Based on our assumptions and calculations for the container shipping market in 2010 on the Far East to Europe trade, the conclusion is that there are only cargo volumes for one out of five new giant containerships due for delivery in 2010.
Shipping analyst at BIMCO, Peter Sand says: “in our calculations we assume that container transport volumes grow by 5% in 2010 on the Far East to Europe trade lane. This in turn will create a demand for 11 new giant container ships on an annualized basis”. But it must be remembered that this construed and calculated level of demand for more ships is created in a fairly artificial market scenario based on assumptions made.
What if all 61 giant containerships will be delivered?
The table below shows that if all of the giant containerships that are scheduled for delivery in 2010 were actually delivered and put into service on the Far East to Europe trade, that the trade lane could be oversupplied by as much as 200% of the demand growth for container transports during 2010.
Should all 61 containerships be delivered according to the current order book, they would be able to transport as many as 1.7 million TEU, from the Far East to Europe if they were all employed on that trade.
Possible impacts from the influx of too many giant containerships:
The economies of scale suggest that any newbuild giant containership will enter into service and could thus be creating a domino effect that will affect the current composition of all Far East to Europe services. The pressure from cascading tonnage as an effect of this can only be imagined. Certain sub-segments of the container fleet are bound to be squeezed if this is going to happen.
Most of these giant containerships were ordered back in 2007 in very different business conditions, and they are now entering the market when their superior capacity is not much in demand. Owners and operators could find themselves reconsidering the original plans for these ships. Some may enter into trans-Pacific services, or even trans-Atlantic service, in order to find employment to fit their capacity. Bear in mind that only a small number of ports world-wide can host the large ships and that this does exclude alternative trades for them.
The jury is still out on how many new ships are actually going to be delivered in 2010, but the industry will probably deal with this oversupply by retaining the inefficient tonnage idle to make room for the giant containerships, because it is simply too expensive to have these ships out of service.
“In my mind, shipyards and ship owners must continue or even step up their dialogue in respect of the postponement or cancellation of deliveries. The consequence of doing anything but that, could well be catastrophic for both parties, with massive oversupply of tonnage in most container trades and very unpredictable and unstable future employment for the shipyards. With background in the above scenario, it will be truly challenging times for the container trades and one really has to question the true motives behind shippers’ recent outburst opposing rate hikes in certain container trades” add Peter Sand.
BIMCO contact - Shipping Analyst: Peter Sand PS@BIMCO.ORG +45 4436 6800