SHIPPING sticks to a time-honoured tradition: When shipowners make exceptionally high profits, they order a lot of new vessels. When those newbuilds are delivered by the yards, it kills shipowners' profits, reports New York's FreightWaves.
Such boom-and-bust behaviour has been de rigueur for over a century. As London shipbroker J C Gould, Angier & Co wrote in 1894: "The philanthropy of the shipowners is evidently inexhaustible. The amount of tonnage on order guarantees a long continuance of low freight rates."
The container industry has experienced the most profitable two years in shipping history in 2021-22. Right on cue, owners ordered more new containerships than ever before. Even now, as freight rates tumble, they're still ordering more.
"A huge number of new large container ships are going to hit the water at a time of stagnating demand," warned Alphaliner in a recent report. "The market could struggle to absorb all these new ships."
The containership orderbook now stands at 7.1 million TEU, according to Alphaliner shipping analyst Stefan Verberckmoes. The previous peak was 6.6 million TEU in 2008. At that point, tonnage on order totalled 60 per cent of the capacity of the on-the-water fleet.
Since then, the global fleet has more than doubled, so the current orderbook - a record in absolute capacity terms - represents "only" 30 per cent of existing tonnage, noted Alphaliner.
The majority of tonnage on order will be delivered the next two years: 2.34 million TEU in 2023 and 2.83 million TEU in 2024, compared to around 1.1 million TEU in both 2021 and 2022, said Mr Verberckmoes.
The scale of the upcoming deliveries is unprecedented. Historical delivery data from Clarksons shows that annual fleet growth averaged 970,000 TEU in 2001-20. Deliveries in 2023-24 will be 2.6 times higher than that average.
The previous single-year record for annual growth was 1.7 million TEU in 2014, according to Clarksons data, well below what's to come.
Meanwhile, the current orderbook continues to grow. New orders favour dual-fuel tonnage that can burn both traditional marine bunker fuel as well as liquefied natural gas or methanol. Alphaliner data shows that 29 per cent of capacity on order is dual fuel.
"The jury is still out on whether the market can or cannot absorb this," wrote Alphaliner.
One way to offset this is for carriers to scrap older vessels. Virtually no container ships were scrapped in 2021-22 because freight rates were so high. Carriers "will look to offload as many older, more polluting ships from the market as quickly as they can," predicted Drewry. "Our base forecast includes provision for a near-record level of demolitions in 2023."
But Alphaliner said "it is unlikely that the quantity of 'scrap-able' ships will be enough to offset the supply and demand imbalance. Most certainly, younger vessels will likely need to be torched too, to alleviate the pain."
Carriers could also throttle sailing speed, which would cut fuel costs, reduce emissions and remove effective supply. Another big lever for ocean carriers: They can let existing charters expire to offset newbuild deliveries.
In general, Drewry voiced optimism that the carriers could use various strategies to avoid a wipe-out when the tidal wave of newbuilds hits.
Shipping lines are "entering a period of managed decline," it said. "Following consolidation and alliance restructuring, carriers are better placed now to tackle the 'danger' years than ever before" and to "pull the right capacity levers to ensure a soft landing for the market."
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