Predicting containership fleet growth is probably the most contentious and hardest task for any forecaster. The orderbook is constantly evolving as deliveries are made and new orders come in, while demolitions and the occasional cancellation also reduce the pot. Furthermore, quite often the scheduled delivery date does not match with the actual delivery date, making pinning down a baseline like trying to hammer a nail in jelly.

According to different commenters, 2018 is either going to bring a tsunami of new capacity that will drown the container market’s nascent recovery, or newbuild deliveries will largely be manageable. The latter is Drewry’s opinion, as explained in more detail in the latest Container Forecaster.

Orders with a 2018 delivery schedule first appeared in early 2014 and since then the figure has swelled with every new order and slippage from previous years. The expected sum for 2018 reached a peak in October 2017 when the unadjusted orderbook had 1.6 million teu slated. With slippage from previous years added the expected total for the year was close to 1.8 million teu.

Knowing that the scheduled orderbook never matches reality, Drewry includes forecasts for slippage, scrapping and new orders to arrive at a real-world estimate for fleet capacity over the next five years. Even after said adjustments, such was the weight of the 2018 delivery schedule in October 2017 that at the time we predicted supply growth would outpace demand, resulting in a lower reading to the Drewry Global Supply-Demand Index.

However, since then the orderbook has undergone some subtle maneuvers, which have had a positive effect on our supply-demand equations. While the sum total of confirmed new capacity due to arrive through 2022 hasn’t much changed, the delivery breakdown by year has been significantly altered as a consequence of owners delaying a number of deliveries.

This smoothing process means that as of January 1, 2018, the unadjusted orderbook schedule for 2018 shrunk by approximately 150,000 teu to stand at 1.46 million. Based on deliveries in 1Q18 and what is scheduled for the remainder of the year as of 18 April, Drewry expects the full-year delivery total to be in the region of 1 million to 1.2m teu. In essence, over the space of six months owners have pared back the 2018 total by as much as 600,000 teu.

If our forecast is correct the annual delivery total for 2018 will be broadly unchanged from 2016 and 2017, which marked a significant slowdown compared to the previous six years. Crucially, the new supply growth forecast for the current year is lower than demand, meaning we expect the global supply-demand index to nudge upwards this year. The market will still be over-supplied, but not catastrophically so, and certainly showing signs of improvement.

It is important to add that even though the global supply-demand index for the year is expected to be higher, it will start off lower due to the top-heavy delivery schedule in 2018 (see Figure 4). The timing could not have been worse for carriers as it created negative sentiment for the crucial annual Asia-Europe and Transpacific contracting seasons.

While we are anticipating a more benign overall supply scenario for 2018, it would be remiss not to mention that pressures will still exist and vary in severity trade by trade as a consequence of the growing share of Ultra Large Container Vessels (ULCVs) of 18,000 teu and above in the orderbook. ULCVs, with their limited deployment options, made up just 5% of deliveries in 2013 in terms of teu, but have since risen to one-third by 2017. Based on the current orderbook, the upwards trend will intensify over the next few years.

Looking further ahead, the low-level newbuild contracting of 2016-17 means that there is not much scheduled for delivery post-2019, most of which comes from slippage caused by deferrals from earlier years. Based on Drewry’s current projections, there is a clear need for extra newbuilds for 2020 onwards to satisfy the expected cargo growth.

For the record, were no new orders to be placed in the next few years the supply-demand index would shoot into the stratosphere, hitting an unprecedented reading of 108 (100 equals supply-demand equilibrium) in 2022.

That won’t happen of course and new orders, such as the pending mega-ship order from Hyundai Merchant Marine, will eventually fill the void. At the moment, Drewry is of the opinion that new orders will be appropriate to demand needs, thanks to a combination of financial constraints and greater capex discipline brought about by M&A, although we recognise that there are major risks to that assumption, primarily from state-backed entities that can play by their own rules.

The reality of supply growth in 2018 is far less frightening than it was previously. We expect new ordering activity to rise off the floor, but stay at a level that incrementally improves the supply-demand balance over the next five years.