Why are Shipowners Parking Containerships?
In an ideal world all ships, airplanes, and trucks should be fully utilized during the peak freight shipping season. But that is definitely not what is happening this year in container shipping.
The recent decisions by several carrier alliances to suspend two transpacific loops at the start of what is usually the peak shipping season, rather than at the end of it, was one of the first signals that something exceptional was starting to happen in the market, according to a recent report from Drewry, the London-based ocean transportation consultancy.
The G6 alliance has stopped the CC1 transpacific service, which resulted in five of its six vessels of about 6,600 TEU becoming idle, with the sixth ship being redeployed to another service. The Ocean Three alliance suspended its Manhattan Bridge service beginning the second week of July; nine ships of about 4,000 TEU became idle as a result.
Drewry’s proprietary data can confirm that increased idling of containerships is happening on a large scale. The report found that over 300 containerships—with a combined capacity of over 800,000 TEU—were idle in early July, supposedly the start of the Asian peak export season. In July of the two previous years, less than a quarter of this capacity was idled.
This unusual market development can be explained by several factors, according to the report. “Drewry market sources indicate that the peak season in the transpacific is rather weak,” the report said. “A combination of low freight rates and muted demand must have played a part in the unusual decision of carriers to lay up ships in July. We also speculate that carriers are trying not only to park unused capacity but also to bring spot rates back up by increasing load factors on remaining active ships.”
Drewry’s analysis of the fleet shows only five very large (13,000 TEU) idle ships. Four of these are chartered by financially-challenged Hyundai, although most have just been redeployed on an Asia-Mediterranean service.
As deliveries of new ships continue, carriers are starting to run out of options on how to deploy even their largest ships in today’s over-supplied market.
An increasing number of panamax ship, with capacities of about 4,500 TEU to 5,000 TEU, are now idle, following the opening of the expanded Panama Canal.
Even the smaller ship segment—vessels of less than 3,000 TEU—is seeing a trend towards inactivity. Until recently, the risk in this segment appeared to diminish as few smaller ships were being ordered and delivered into the market. “But we now note that there has now been no increase in the small-ship global capacity requirement,” the Drewry report stated. “The intense competition and over-capacity of the intra-Asia market, where a high proportion of smaller vessels are employed, explain part of this change. In the past two years, the active fleet of ships of less than 3,000 TEU and for 3,000 TEU to 5,000 TEU has decreased in absolute TEU capacity. Only the active fleet of the 8,000+ TEU ships has increased.”
As a percentage of the global fleet, the idle fleet this peak season represents about four percent, despite the increase in demolitions, up from one percent this time last year.
“This does not bode well for asset utilization during the slow season,” the report concluded. “Growing over-capacity means that the increase in the idle fleet now happens across all ship sizes and apparently in all seasons. It is likely that some of the newly idled ships will be sold for demolition, particularly the older panamax vessels.”
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