Whilst the number of vessels idled is increasing, far fewer have been taken out of service compared to a year ago, confirming ocean carriers’ preference for cancelling sailings as and when required, rather than withdrawing whole services  – particularly when the ships involved are over 8,000 teu.

According to Drewry’s latest data, 175 vessels with a combined capacity of 516,800 teu lay idled in mid-January, accounting for 3% of the current fleet in terms of capacity, compared to only 152 vessels offering a capacity of 239,000 teu in September.

The growth mainly came from the Panamax (3,000-5,000 teu) and Post-Panamax (5,000-8,000 teu) segments. Altogether, 59 vessels in these size ranges were laid up in mid-January, compared to only 28 in September last year. Oversupply will have been partly responsible, with 74 vessels between 3,000 teu and 8,000 teu having joined the fleet during 2013 compared to 58 in 2012. Another contributing factor is that five Transpacific services were withdrawn between September and November, after the peak season, compared to none a year earlier.

Figure 1
Idle Capacity in Panamax and Post-Panamax Segments

On the other hand, only 165 vessels offering a capacity of 471,000 teu were laid up in December 2013, compared to about 290 vessels offering 800,000 teu a year earlier. Idling activity has been pretty static throughout 2013, which trend has changed little since the beginning of the winter period, even though global demand remains relatively weak.

It cannot be attributed to a considerable improvement in demand, and is probably more related to the fact that freight rates still have a long way to fall to get back to the lows of 2009/10. Moreover, the ships that really need to be laid up are deployed in the Asia-North Europe tradelane where the average size of vessel is now over 10,500 teu. In the 2012 winter season three whole services were withdrawn from the route compared to none this year, even though westbound cargo growth in the first 11 months of 2013 was only 2%.

The formation of the P3 alliance could be another factor affecting lay ups, with competitors being forced to hesitate before embarking on any fleet reduction program that could jeopardize market share before the second/third quarter of 2014. The G6 also intends to expand into the Transpacific and Transatlantic tradelanes then, further putting unaligned carriers’ market shares at risk.

Against such an uncertain background, ocean carriers have naturally resorted to using sailing cancellations as their major weapon to manage capacity, particularly between Asia and Europe.

Table 1
Sailing Cancellations

In theory, many more vessels should be going into lay up as the global fleet capacity growth again outstripped demand in 2013. Altogether, only 187 containerships providing a total capacity of 428,800 teu were demolished against 213 deliveries offering 1.4 million teu.

Table 2
Asset Market Activity (Number of vessels)

Looking at the deliveries scheduled for 2014, massive capacity additions for the segments between 3,000-5,000 teu and 5,000-8,000 teu are again likely to worsen the over-supply. Demolitions in the larger size sector are not expected to rise due to the very low average age of the fleet. In the Panamax segment, the average age is only 8.7 years, and in the Post-Panamax sector it is an even younger 8 years.

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Although the idle fleet capacity will rise in February due to the Chinese New Year, further service withdrawals are unlikely due to the threat of the P3 alliance and expansion of the G6 alliance. More vessels between 3,000-8,000 teu will also be laid up due to the large number of vessels over 13,000 teu due for delivery this year.