Influx of box ships gives lines strategic headache

8/29/2017

Capacity growth on the Asia-Europe containers trade is set to far outweigh demand growth over the next 12 months, leaving lines with tough calls on how to manage excess supply, according to SeaIntel.

The analyst said the phase-in of new large vessels into the Asia-Europe trade would increase capacity significantly, unless the number of services was reduced.

“2H2017- 2H2018 will see 11.5% capacity injection, giving rise to a need for each alliance to close one service,” said SeaIntel. “With the most realistic scenario of a 5% growth in demand, we find it unlikely that the Asia-Europe trade will be able to absorb this additional capacity without the need to reduce the number of weekly services.

“Given our calculation, one service should already have been permanently closed in 2017.”

SeaIntel said the required capacity reduction would most likely be managed through blank sailings in the short-term. “In Q42017, there will be a weekly excess capacity of 28,300 TEU that will need to be blanked, corresponding to 2.2 services on average per week to maintain supply-demand balance,” said a note from the analyst.

“By the 2nd half of 2018, however, maintaining market balance would require the de facto closure of a weekly service by each of the three alliances, with the option of re-introducing a single new service in 2019 as the delivery of large vessels tapers off – which might not happen if the potential new order of 22,000 TEU vessels by CMA CGM is confirmed.”

Carriers could cascade vessels into other trades, although SeaIntel calculated that the closure of three full weekly Asia-Europe services would mean re-deploying 30 large vessels.

“Carriers could choose to inject some of the new large vessels in other trades, however this would lead to an even greater need to reduce the number of services in such trades, as they would be shorter and smaller than Asia-Europe,” said Alan Murphy, SeaIntel CEO.

Comparing forecast capacity expansion in 2H2019 to 2H2017, SeaIntel said 2M would only experience 3.2% growth in deployed capacity, whereas THE Alliance would experience growth of 11.9% in its deployed capacity and Ocean Alliance would see a significantly higher capacity increase of 24.6%.