Chittagong ship breaking
© Koscusko

The world’s container shipping lines have been scrapping and laying-up increasing numbers of vessels to contain a freight rate slide as the trade enters its traditional peak season.

Weak peak season demand is forcing carriers to curtail capacity, especially on the transpacific trade, according to data from Alphaliner published this morning.

It shows total slot capacity between Asia and North America was 1.6% less this month than in July 2015.

Most of that capacity was withdrawn by the O3 partners, which cancelled one Asia-US west coast and one Asia-US east coast service – an 18.8% capacity reduction.

In contrast the Maersk-MSC 2M partnership has seen capacity increase 7.1% year-on-year – although there was a 1% decrease between June and July.

The CKYHE Alliance, which has the largest transpacific offering at 150,230 teu a week, grew capacity month-on-month between June and July this year by 1.5%, and year-on-year by 3.8%. The second largest offering, the G6 with 133,610 teu a week, saw capacity diminish 3.3% month-on-month and 2.3% year-on-year.

Whether these cuts are significant enough to stabilise freight rates remains open to question – an analysis of scrapping levels by Drewry Maritime Research this week suggests operators will need to do a lot more if they are to bring supply back in line with demand.

Drewry data shows that as much as 450,000 teu of capacity could be scrapped in 2016, making it a record year for ship breakers. Last year less than half that amount was scrapped.

According to the analyst, some 14 ex-panamax vessels were sent to scrapping facilities in the first quarter this year alone, as that particular asset class is facing increasing redundancy due to the opening of the Panama Canal expansion.

“More panamax vessels will surely head for the scrapyards of South Asia, as their owners or charterers replace them by newer and more efficient 8,000 teu-plus ships,” it said.

Much of the activity has been at the behest of non-operating vessel owners left with few options after charter hires rates went into meltdown.

“The choice is between chartering out ships at historically low (and loss-making) levels, paying for idling costs until a hoped-for shipping market recovery happens, or scrapping the vessels,” said Drewry. “More will decide that scrapping is the least bad of the three options.”

However, Drewry also warned that as 450,000 teu represented just 2% of global ship capacity, the effect on freight rates was likely to be limited, especially as some 4.5m teu capacity was added to the global fleet between 2010 and 2015.

“Although necessary, ship demolitions will not be enough to bring the container sector back into balance unless owners also refrain from ordering many new vessels.”

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  • OldShippingSoul

    July 21, 2016 at 5:07 am

    This is probably the only industry in the world that operates a business to incur losses. Billions and billions of dollars, freely given to the importers/exporters, who are laughing themselves to the bank! Yet, they continue to survive, stay afloat (pun intended), and fight for market share! At any other given organization, the top executives would be packed and shipped out.

    Leaders had very little foresight on the state of the world economy. These big ships are like dinosaurs and the big banks.

    Serves them right.