Head of Research, Affinity Shipping LLP
9 Aug 2018 10:39 (GMT+1)

Containerships: More to be left idle, as rationalisation is here to stay

The idle containership fleet capacity has further increased during the last couple of weeks and now stands marginally above 340 k Teu. This means that around 1.6 per cent of the global Teu capacity is not utilised. The growth looks rapid if we consider that that just 0.9% was left idle in early June. Mainly driven by capacity rationalisation in the Far East - Middle East and Far East - North America routes, the active fleet is expected to remain under pressure in the next couple of months, as companies plan to further cut their capacity especially in the Transpacific route. However, the new services to be launched on the Australia routes might secure employment for some of this idle capacity. But once we approach October and the winter slack season is here, we could see the idle fleet rising fast, even above 750 k Teu.

Removing excess capacity during the summer season, when shipping demand typically peaks, made the supply-demand balance look much healthier and in favour of ocean carriers, with the Transpacific SCFI spot freight rates moving up quickly after the moves to rationalise capacity on the route. Last week, rates surpassed USD 2,000 per Feu to the US West Coast and flirted with USD 3,100 per Feu to the US East Coast. In the meantime, the cost of chartering in vessels of non-operators has decreased strongly in the last month.

However, there are still things to make us pessimistic for the near-term performance in the Transpacific route, as container volumes could decline fast in September, if the US administration proceeds with what it has been threatening and imposes further tariffs on USD 200 Bn worth of imports from China. Earlier this year, both in January and July, the first rounds of import tariffs had affected the trade volumes and most importantly the market’s sentiment. This proved enough for several ocean carriers to decide drastically rationalising the capacity they’ve been employing in routes to and from the US, for the first time since 2009. We’ll see further cuts in August and September, but with no real impact expected, as parallel new services will be launched on the Far East – Australia route, as mentioned above.

In the meantime, there are still voices that the initiatives taken came into effect too late, only two months before the start of the winter slack season. And any belated tonnage cuts since early July followed a massive capacity expansion in 2018 H1, during which the active container fleet capacity expanded by 9.3 per cent. Growth will remain high in 2018 H2, but closer to 6 per cent. The rather limited interest to scrap has been another factor supporting the idle fleet growth. This could translate into further drops in charter rates, even if the spot freight market continues to flourish.

Focussing on recent SnP activity, the 2006-built “HAMMONIA EMDEN” of 2.56 k Teu was acquired by Israeli interests, including T/C to Maersk until Oct-19, but with no price disclosed yet. The vessel is geared with four 40t cranes.

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