Top-heavy growth in container tonnage sparks overcapacity concerns

maersk container ship docked

April 18, 2018 - The number of containerships sold for scrap has slowed dramatically as shipowners in the smaller sectors take full advantage of a rejuvenated charter market and reactivate mothballed tonnage.

According to Alphaliner, only 12 ships, equating to 21,778 teu, have been sold for demolition so far this year, compared with around 70 vessels for 230,000 teu at the same time last year.

The consultant said that, as a consequence, it was adjusting its full-year scrapping estimate to 200,000 teu for 2018, compared with the 413,982 teu and 654,862 teu in 2017 and 2016, respectively.

However, the final figure this year could be even lower, “somewhere in the 100,000 teu to 200,000 teu bracket”, it suggested.

Alphaliner has seen its idle fleet chart fall to fewer than 100 ships for 340,000 teu from a record high of 1.6m teu in October 2016, as demand for the smaller vessels in particular has driven daily hire rates, on average, 40% higher than 12 months ago.

Shipowners that had previously consigned ships to lay-up against a background of sub-economic rates are now reviewing their strategy and, despite the fact that scrapping rates have jumped to around $500 per long ton, are opting instead to reactivate and fully crew their ships to take up attractive new fixture offers.

According to vesselsvalue.com, containership values are more than 15% higher than a year ago, reflecting the strong market conditions. A 5,600 teu post-panamax can now command over $17,000 a day, compared with around $13,000 just two months ago. One London broker told The Loadstar last week that the sector was “sold out” on his books.

The substantial reduction in the idle tonnage fleet and sharp decline in scrapping is the result of a complete lack of orders for newbuild tonnage in the smaller-sized containerships, as ocean carriers and non-operating owners focus almost entirely on ordering big ships.

Alphaliner notes that over 1m teu in ultra-large containership capacity is slated for delivery this year, which, along with reduced scrapping, could push annual capacity growth up to 6%.

Meanwhile, the top-heavy growth in container tonnage is causing overcapacity concerns in the ULCV sector. The Loadstar has heard anecdotal reports this week of tumbling load factors on the Asia-North Europe trade, with spot rates weakening daily.

Every delivery of a new mega-containership requires the carrier to redeploy an incumbent large ship, but this cascading appears to have hit a wall, according to one carrier source who admitted to The Loadstar recently that many of the displaced ships were proving to be “far too large” for other trades.

So, the dearth of available smaller-vessel tonnage is causing a significant hike in charter rates and a halt to scrapping, while at the other end of the scale there is far too much capacity chasing demand, leading to freight rate pressure.

Source: The Loadstar