The cascade of ships from Asia-Europe is passing overcapacity on to smaller trades that most often don’t have the demand growth to easily absorb them.

The maritime consultants at Drewry are more optimistic than they have been in a while about the ocean shipping industry, as demand continues to make small, incremental gains and freight rates rebound after last year’s nadir. But the biggest risk to that outlook is the huge number of ship deliveries, particularly at the top end of the scale.

This year the industry will have to make room for as much as 1.7 million TEU of newbuilds (assuming none slip into next year) with over half being 14,000 TEU or above. The recipients will be primarily the world’s three largest carriers Maersk, MSC and CMA CGM, which suggests they will further extend their lead over their peers in the top 5.

Because most of the big ships will go straight into the Asia-North Europe market they will push out smaller units into secondary routes such as Asia-Mediterranean, transpacific and the Asia to Mid-East routes. Then the cascade continues as ships in those routes have to find a new home or potentially be laid up.

Average ship sizes have increased faster than demand on most of the east-west trades with the exception of the westbound transatlantic. A 20-percent jump in the size of vessels serving Asia to the east coast of North America is entirely linked with the widening of the Panama Canal last summer but the disparity with demand growth means that carriers have had to make a trade off by reducing the number of services.

The north-south trades have almost universally suffered from weak demand on headhaul legs and are are not in a position to absorb too much additional capacity. There is a mismatch between the rise in ship sizes in north-south trades and demand that is moving in the opposite direction. The appearance of 13,000-TEU ships operated by MSC on the Asia-to-West Africa trade has helped boost the average deployed tonnage by 16 percent in 2016 yet shipments in the southbound leg were down by 11 percent as of the end of November 2016. On the Asia-East Coast South America trade ship sizes are up by seven percent—a legacy of orders placed when Brazil was a fast-growth market—but demand has fallen by close to 20 percent.

Carriers have done a reasonable job in balancing capacity needs in the east-west trades, according to Drewry, and has shown an upwards trend to the utilization index, which in turn has assisted the freight rate recovery. However, the pain has merely been passed along to the north-south trades where utilization is in decline. These trades are the victims of the fact there is simply nowhere else to put the cascaded east-west ships and until they recover the demand strength carriers will either have to accept poor returns on freight rates or park more ships.

We’ll know that ocean shipping is on the mend, Drewry concludes, when the industry doesn’t have to squeeze ships into trades that are not equipped to handle them.