Officials and analysts from across the container shipping industry are warning of the destabilising effect of surplus shipbuilding capacity, which threatens to derail any profit recovery.
The scramble to win newbuilding contracts is depressing yard prices and persuading owners that can put together the finance to place orders at what look like bargain prices. But more ships will add to the amount of surplus tonnage that is keeping a lid on freight rates and holding back profits.
Alphaliner has added its voice to the growing number now urging caution, warning that the container shipping industry is heading towards a prolonged slump that could last longer than the 2009 downturn.
Alphaliner forecasts that trade is expected to grow more slowly than the fleet “for quite some time”.
Ocean carriers’ profit margins have slipped this year, “and the poor operating conditions experienced these days could well last for two more years, given the prevailing oversupply situation”.
This problem is exacerbated by the excess shipbuilding capacity, with a significant number of shipyard slots still waiting to be filled, according to Alphaliner.
The weak outlook in the dry bulk and tanker markets is adding to the excess newbuilding capacity problem.
“As yards offer low newbuilding prices to fill their building slots, owners will be tempted to order further containerships,” adding to the large amount of capacity already in the pipeline.
“Unlike the 2009 recession, which resulted in the first fall in demand for container shipping ever experienced by the industry, the current slump is caused by an oversupply of capacity and weak demand growth in the European and US economies,” says Alphaliner.
The lull in containership orders between the fourth quarter of 2008 and early 2010 brought the orderbook down from 60% to 26% of the existing fleet, “but did not solve the overcapacity problem”.
Last year’s strong recovery “bought time for shipping lines”, with record earnings helped many to restore their battered balance sheets.
However, this triggered a new wave of containership orders, pushing the orderbook back close to 30% of the existing fleet. Anything beyond that is regarded as risky for future trade equilibrium.