Maritime shippers are plagued by overcapacity with still more on the way for some others, and that has left a significant number of container ships idle.
The Baltic Dry Index was at 567 points on Apr. 14 after tumbling to a record low 290 points in February. While the ongoing rally is a good sign, the index's five-year benchmark through 2015 of 1,100 points shows just how much overcapacity has dragged down shippers, according to Bloomberg. In the five years prior to that, the benchmark was 4,406. When shippers were riding a wave of better business, investments were made to replace aging capacity. In addition, massive vessels emerged as a popular option for shippers hoping to improve fuel economy while simultaneously moving more cargo. The decision to go all-in on capacity has left the industry with a glut of unused container space.
Thousands of TEUs going unused
Alphaliner data indicates that there are currently over 200 idle container ships with capacity of more than 3,000 twenty-foot equivalent units (TEU), according to the Journal of Commerce (JOC). Idle capacity is at a total of 1.48 million TEUs, around 7.4 percent of the global fleet. Worse yet, demand does not seem to be improving, which means chances are supply will remain at a detrimental level for the time being.
The pool of idle container ships can be broken down into TEU-based categories:
- 7,500 TEUs and more: 55 ships.
- 5,100 to 7,499 TEUs: 54 ships
- 3,000 to 5,099 TEUs: 91 ships.
Despite the number of unemployed ships in the global fleet, more capacity is in the pipeline, according to Bloomberg. Close to 2.8 million deadweight tons have been added to the global fleet since December. That is the equivalent of one new Capesize bulk carrier every five days. Worse yet, the low price of iron ore makes simply demolishing excess supply an unappealing idea. So, shippers are left with too much capacity and few options regarding what to do about it.
Some shippers are scrapping excess capacity
Still, there are shippers willing to get rid of excess capacity, even relatively new ships. Through 2016, six ships with capacity from 5,400 to 6,500 TEUs have been demolished. One of the vessels, 15-year-old DS Kingdom, was the largest container ship ever sold for demolition at 6,479-TEUs. The ship had been laid up in Asia since mid-November, and is one of the youngest to be demolished this year. Four much younger sister ships, all built in 2011, have been idled between four and nine months now.
The JOC noted that prospects for the massive Panamax ships that have proven popular for their capacity in recent years face a "grim" future. Fuel is much more affordable than it was when these larger vessels began trending among shippers. Meanwhile, there is so much excess capacity that the need for more, especially units of that size, is essentially nonexistent.