Trade is slowing at a detrimental rate for container-ship fleets – so much so that even the low cost of fuel is not helping because shipping lines are inundated with surplus capacity.
Carriers increased capacity began regularly slow steaming when trade growth was strong and fuel prices were high to save money and ensure they could keep up with demand, the Journal of Commerce (JOC) explained. However, now that global trade has slowed down substantially and fuel is cheap, those solutions are beginning to appear more like problems to most shipping lines. All the excess capacity seems wasteful and there is currently no need for slow steaming because now fuel is more affordable. However, reverting away from slow steaming would be wasteful in itself with so much extra capacity to be used. Carriers find themselves in a quandary in 2016.
This year expected to be the worst on record for containership fleet growth
This predicament will be behind what is projected to be the worst year on record for container fleet growth. Alphaline found that containership capacity is expected to grow a mere 4.6 percent in 2016, according to World Maritime News. The previous low-water mark was 5.5 percent. However, the current trade climate simply does not have room for even more capacity, though that does not mean it is not in the pipeline.
Alphaliner expects that some deliveries may be delayed in 2016 due to the lack of need for more capacity. A smaller group of order could be canceled altogether. The shipping information resource also noted that the number of vessels sold for scrap is growing as well, as shipping lines do what they can to cut down on capacity.
Cancelling and delaying order will only do so much, though, since surplus capacity is already a substantial problem. A BIMCO estimate places last year’s new capacity at around 1.67 million 20-foot-equivalent units (TEU), the JOC reported. While that growth is set to be significantly less this year, the capacity issue at hand is already excessive.
Rising demand could be shippers saving grace in 2016
Cutting slow steaming will not do much to solve the problem, nor will delaying product in the pipeline since there is already too much capacity. The only way to turn around what is not likely to be a memorable year for containership fleets is for demand to pick up. However, many warehouses are overstocked.
There is some hope for demand to pick up in Europe, though, the JOC reported. The Chinese yaun’s decline against the U.S. dollar will suppress the cost of imports.
“Private consumption in Europe has been steady over the past year so eventually demand should come back,” said Peter Sand, chief shipping analyst at BIMCO, according to the JOC. “At what level and what time remains uncertain. What remains certain is the sooner, the better.”
Demand seems to the surest cure for containership fleets’ woes in 2016. Now they just have to wait for it to materialize.