News / Capacity concerns trigger more rate fears for shipping lines

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As container shipping lines prepare to introduce a new round of peak season surcharges on the trunk Asia-Europe trade, overcapacity is causing forwarders to fear that rates are set to undergo another period of profound volatility.

“I think that at the moment we are at the high point, and the fear is that they will go down again – the carriers try to maintain and raise rates, but recent peak season surcharges and general rate increases didn’t go through,” said Volker Spevacek, Geodis Wilson’s director of ocean freight in Hamburg.

“The problem is that the ships aren’t full,” added Matthias Hansen, the company’s managing director of central Europe. “Some are sailing only 60% full.”

Today’s figures from the Shanghai Containerised Freight Index (SCFI) saw the Shanghai-North Europe spot rate benchmark fall 4.5% over last week to $1,667 per teu.

Although there are concerns that the decline is the beginning of a perilous slide, current spot rates are profitable for carriers (provided bunkers don’t swing violently upwards) and workable for forwarders, as long as they stay relatively constant.

“$2,500-3,000 per feu is a level that works for us, as long as it remains stable,” Mr Spevacek added. “The key thing is that we don’t want to bet on rates; we don’t want all these highs and lows.”

Over the last week it has emerged that Maersk and the CKYH alliance had skipped some sailings in an effort to trim capacity, after a selection of carriers announced new peak season surcharges (PSS) due to come into effect on August 1.

CMA CGM, China Shipping and OOCL have all announced a PSS of $300 per teu, while MSC and Hapag-Lloyd have set it at $350 per teu and Coscon is going for a $400 per teu increase. In addition, Hapag-Lloyd, routinely identified by forwarders as the line at the upper end of the rate band, has announced a further $250 per teu general rate increase for August 15.

The latest research from liner shipping consultancy Alphaliner shows that at the beginning of this month the global idle fleet – the number of teu slots currently laid up –  came to 446,200teu, representing 211 vessels without employment, which was a slight increase over the previous month.

The vast majority of that capacity, it said, was chartered vessels returned by lines to non-operating owners, while 167 of the 211 vessels are in the 500teu-3,000teu size range.

Alphaliner commented: “The idle fleet is expected to rise further as carriers refrain from introducing new capacity into an already over-supplied market. Several carriers have also started to skip sailings on the Asia-Europe route in July, in what should have been the peak season for the trade.

“All eyes will be on Evergreen in the coming weeks as it takes delivery of its first 8,500 teu ‘L’-class newbuildings later this month, with roughly one new ship from this series due every month over the next 35 months. The first unit, the Ever Lambent, is expected to inaugurate a new Far East-North Europe service at Shanghai on 1 August.”

It is the size of the impending orderbook that concerns observers, and as if to underscore that point, Hapag-Lloyd’s first 13,200teu newbuilding, the recently named Hamburg Express, has been deployed into operation, while the second in the series was launched a couple of days later and will be named at the beginning of October, with a third due to be named at the beginning of December. These three vessels will operate the G6 Alliance’s Loop 4 Asia-Europe service.

A further seven vessels of the same capacity will be delivered next year – the same year in which Maersk is due to begin taking delivery of its Triple-E class.

But do bigger ships necessarily mean more capacity? At face value, that is an idiotic question, but while carriers are taking delivery of their own vessels they are, as the Alphaliner data shows, delivering back chartered tonnage to owners. To some extent, the depressing effect of overcapacity is being shifted from freight rates to charter rates – it wasn’t just the lines that over-ordered container ships at the height of the market, non-operating owners have to take their share of the blame, and now it appears they are taking their share of the financial hit.

In addition, the merging of the New World Alliance and Grand Alliance into the G6, and the cooperation between Evergreen and the CKYH alliance, in combination with the near-universal employment of super-slow steaming, is diluting the immediate impact of the new capacity.

But crucially, carriers need to effectively demonstrate that fact, as well as to show a continued willingness to pull sailings if there is insufficient demand. Or else the prevailing sentiment – which has been sunnily bullish on the parts of both carriers and forwarders in recent months, compared with the depths of the previous rate war – could return to what has become the post-recession default-setting, looking to all intents and purposes like the early onset of serious depression.

UPDATE: I thought it might be useful to post Alphaliner’s graph showing how the idle fleet has evolved over since the beginning of 2009. It pretty much tells its own story: