Capacity expansion will outpace demand growth on the transpacific

3/4/2018

Container slot capacity on the transpacific trades will rise substantially in the coming months, with the expansion set to outpace demand growth, according to analyst Alphaliner.

It predicted lines will increase capacity “by at least 8% by July this year” via new services and upgrades to existing strings. Overall capacity to both the US West Coast and US East Coast is forecast to increase by 8-9%, with additional capacity to be progressively phased in from April. 

“The Ocean Alliance carriers are expected to contribute the bulk of the additional capacity, with overall growth of more than 10%, while SM Line will almost double its capacity with the launch of a new service to the Pacific Northwest in May 2018,” said Alphaliner’s latest report.

“APL has also announced a new Eagle Express X service, to be launched in July 2018, offering a fast eleven-day transit time from Shanghai to Los Angeles. This new loop is set to challenge the ten-day express service that Matson offers on its China-Long Beach Express CLX.”

This year’s planned capacity increases are forecast to outpace the growth in head-haul transpacific eastbound volumes, which Alphaliner predicts will expand at 5-6%, following growth of 4.4% last year.

As a result, the planned capacity increases will impact ongoing rate negotiations for the new annual transpacific service contracts due to enter into force from 1 May and spot freight rates which the analyst predicted will come under pressure as vessel utilisation falls.

“After the brief recovery of January and February, SCFI spot rates are expected to register falls in the coming weeks as demand slows after the Lunar New Year holidays in the Far East,” said the analyst. “Spot rates could once again test the key $1,000/feu level to the USWC and the $1,600/feu level to the USEC.”

Apart from the Ocean Alliance capacity additions, Alphaliner said the THE Alliance had also upgraded its ‘PN3’ service to the 13,000 TEU scale.

“The 2M carriers have yet to disclose their 2018 transpacific service upgrades but they are similarly expected to upgrade several strings on this route,” said the note. “Maersk and MSC could thus phase newbuildings of 10,000-15,000 TEU into the trade, as well as ships of 13,000-15,000 TEU, cascaded from the Asia-Europe routes where more and more ‘Megamax’ ships of 18,000+ TEU will come on stream and set tonnage free for redeployment.”