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Cosco defers mega-ships as excess capacity builds    11/01/2018
Cosco Shipping, the carrier with the industry’s largest order book, will defer delivery of 10 mega-ships to 2019, but with so many mega-ships coming online this year it will barely make a dent in the capacity scheduled to join the fleet, according to industry analyst Alphaliner.

Container shipping capacity is something shippers pay close attention to as the supply-demand balance has a direct impact on freight rate levels. Photo credit: Shutterstock.

Even with the deferrals, the total new container ship capacity due to be delivered in 2018 will come to around 1.3 million TEU, according to IHS Markit. Approximately 30 percent of that new capacity will be for mega-ships of 18,000 to 25,000 TEU. In addition to the 10 Cosco vessels, six of which appear to be in the 19,000 to 21,000 TEU range, Yang Ming has also delayed three 14,000 TEU ships it was to have taken delivery of in 2018. The total TEU volume of the ships Cosco delayed is 166,576 TEU, according to IHS Markit data.

Container shipping capacity is something shippers pay close attention to as the supply-demand balance has a direct impact on freight rate levels. The high level of capacity coming online this year is set to be in excess of demand, which will limit the ability of lines to raise rates. 

Data from IHS Markit, the parent company of JOC, show that container volume growth on Asia to North Europe and the Mediterranean will strengthen through 2018, increasing by 4.5 to 4.9 percent compared with 2017. However, the global container fleet is on track to grow still faster, even after scrapping is taken into account and a quarter of the capacity is delayed.

IHS Markit data tracking the container shipping order book, deferrals, and the capacity being scrapped, reveal that Cosco Shipping has a total of 27 vessels on order that will be delivered between January 2018 and December 2019. Of those vessels, 17 are in the 20,000 to 21,000 TEU class that are destined for loops on the Asia-Europe trade. OOCL, which is being acquired by Cosco, has just one vessel from its 21,000 TEU series left to be delivered, having received five of the ships in 2017.

Alphaliner said the January surge in vessel deliveries of 250,000 TEU will be followed in the next four months by additional new ships with a total capacity of 790,000 TEU, all expected to join the world fleet between February and May. The ships will arrive in time for upgrades planned on various services of the 2M, Ocean, and THE Alliance, but will also trigger a cascade of smaller, although still fairly large, ships into secondary trade lanes, such as South America, Indian Subcontinent, and intra-Asian routes.

The persistent imbalance in supply and demand is affecting contract rates, with early indications that direct shipper-carrier and forwarder-carrier contracts on the Asia-Europe and Mediterranean trades, usually fixed from Jan. 1, are being secured at the same or slightly below the levels settled at in 2017.

The supply chain director of a global retailer said he contracted 95 percent of his 60,000 TEU shipped annually on Asia-Europe and was expecting rate levels secured with carriers and forwarders to remain the same as those negotiated in 2017. “Carriers are not begging for cargo and they have enough space, so they don’t need to drop rates so much,” he told JOC.com. 

The lack of any significant increase in service contract levels is despite carriers across the board reporting solid third-quarter 2017 profits on the back of strongly increasing container volume and spot rates that were above the levels recorded during the same quarter in 2016. The 2017 annual results will be announced in about a month, and analysts expect most carriers to be in profit despite a weak fourth quarter.

Adapting to the market fundamentals in 2018, however, will prove to be a significant challenge for the carriers. BIMCO chief shipping analyst Peter Sand said profitability was up for grabs across the container shipping industry, but it would depend on demand growth remaining in the region of 4 to 5 percent and actual fleet growth being carefully managed.

He said carriers needed to harvest the economies of scale that would come with large volumes on head-haul trades, combining positive demand growth with operational efficiency.

One high point as 2018 gets under way is that container exports from Asia will increase in the run up to a relatively late Lunar New Year beginning on Feb. 15 and extending the traditional peak shipping period by a couple of weeks.

“Although cargo demand has remained strong in the first two weeks of January, with capacity utilization reported in the high 90 percent levels across all main trade lanes due mainly to the seasonally strong pre-Lunar New Year rush, both the freight and charter markets are expected to be severely tested in March when demand dips after the Lunar New Year and utilization levels are expected to fall,” Alphaliner said. 

In a note to customers, investment bank Jefferies said freight rates and load factors historically rebound four weeks before Chinese New Year and weaken for the four weeks following China’s main holiday.

 




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