Container Capacity Growth is Unsustainable Warns Sea-Intelligence

Analysts warn that the container industry's overcapacity is not sustainable (Los Angeles file photo)

Published Nov 22, 2023 5:09 PM by The Maritime Executive


Overcapacity for the key liner trade routes remains rampant meaning that carriers are facing tough decisions as the end of 2023 approaches according to a new analysis from Sea-Intelligence. It points out that carriers failed to make anticipated adjustments after the Chinese Golden Week celebration at the beginning of October leaving the industry in a challenging position as contract renewal season is approaching.

The container carriers continue to build massive amounts of new capacity with the first of the vessels ordered during the peak surge in the pandemic beginning to enter service and rumors of still more orders for large vessels. Next year, 2024, is set to see a further surge in new vessel deliveries while many analysts have highlighted carriers overall remain reluctant to scrap old tonnage. While the majors have begun to send some tonnage for recycling, overall, they are holding on to ships illustrated by BIMCO’s recent report that the average age of containerships is at an all-time high.

Data from Alphaliner shows that the orderbook continues to overhang the industry. Currently, they calculate the Top 10 carriers have approximately 6.1 million TEU on order, which is equal to 26 percent of their current capacity. Overall, the Top 100 has over 6,700 vessels active with a combined capacity of 28.3 million TEU and a total orderbook reaching 6.8 million TEU. BIMCO in its analysis has warned this could mean that overcapacity persists till 2030 or beyond.

Sea-Intelligence in October reported that it saw substantial overcapacity in the industry. They expected carriers would begin to announce additional blank sailing “to counteract this supply-side growth.” Hardly any new blank sailings have been announced, and capacity growth for the remainder of 2023 is still quite excessive observes Sea-Intelligence in its latest analysis.

The report highlights that depending on whether capacity growth is compared post-Golden Week 2023 to the same time in 2019 or to the average growth of 2016-2019, Asia-North America West Coast capacity is up between 16 and 25 percent, Asia-North America East Coast capacity is up by 22 to 32 percent, Asia-North Europe is up by 8 to 11 percent, and Asia-Mediterranean is up by between 36 and 38 percent. 

“These are all unsustainable capacity growth figures,” comments Alan Murphy, CEO of Sea-Intelligence. “With six weeks to go to the end of 2023, there are pretty much two ways in which this plays out. Either the carriers announce a massive blank sailings program between now and the end of the year … or the carriers ride this wave of high-capacity injection and the likely downward pressure on freight rates into the new year, and compensate for it during Chinese New Year.”

Carriers the analysis observes however are caught between the two challenges. If they increase blank sailings to reduce capacity, it will not go down well with the shippers. Sea-Intelligence notes cutting capacity will leave shippers scrambling to manage these sudden supply-side disruptions. However, if they do not cut capacity and continue with the introduction of more vessels it will further erode rates.

Major carriers including Maersk and Hapag-Lloyd highlighted rates in their recent earnings reports saying on some routes they were below minimum levels and overall were unsustainably low for the industry. Maersk warned it could get even more difficult for the industry if rates did not improve during the final quarter of the year, while CMA CGM executives urged the industry to avoid an all-out rate war.

Sea-Intelligence believes time is running out for the carriers to bring capacity down and reverse the strong growth over the pre-pandemic peaks.