Knot So Fast!

The sure-fire way to deal with overcapacity is for carriers to resort to super-slow steaming, order bigger ships, raise rates even higher, and pretend that it isn’t feasible to lay up a few hundred of their unnecessary ships … then things will be rosy again this year. Right?

Not everyone in the industry is swallowing that baloney, thank goodness. There are some who still are willing to face reality. Exim India analysts, for example, stated earlier this week that, “Only very isolated positive signals can be detected for 2012. Whether a sustainable turnaround in the fortunes of container lines shipping will come about in the current year cannot yet be said with any certainty … carriers are proceeding to abandon uneconomic routes and idling capacity.

“The shares of laid-up tonnage has been rising constantly for months. Industry watchers consider it possible that 6-7 percent of the global containership fleet will be laid up towards the end of the year. Given continued high fuel costs, expectations in the medium term are for high-consumption older tonnage to be scrapped earlier than has hitherto been customary. Should liner shipping companies generally have their ships sail even more slowly (‘super-slow steaming’), this would likewise contribute to a reduction in overcapacity.

“Even with a moderately positive development of the world economy and world trade, however, it will still be one or two years before global cargo volume and slot capacity regain equilibrium, a pre-condition being the absence of further sizable new orders.” –

A number of other analysts aren’t buying the industry’s feigned optimism, either. After being wrong so often in the past, prognosticators are taking a different tack. They’re beginning to acknowledge the obvious: with so many new big ships coming into trades, additional lay-ups will be needed or rates will drop. Truth is, additional lay-ups will indeed take place, and rates will indeed drop.

At Containerisation International’s Global Liner Conference in London, a panel of analysts advised those in attendance that, despite acceptance of the general rate increases of the last two months in the Asia-Europe and trans-Pacific trade, so much additional capacity is due for delivery this year that rates will almost certainly start falling again by the fourth quarter unless carriers start to lay up more of their ships.

“There is too much capacity being integrated in too short a time. Global demand has to grow at 13.5 percent to absorb all this capacity,” said Lars Jensen, CEO of Seaintel Maritime Analysis, “… but that’s not going to happen,” he concluded.

Matthew Beddow of Container International predicted that carriers will have to lay up 1 million TEU or more, in the coming months, and said, “By the end of the year, carriers will be saying, What the hell do we do now?”

They can do what incompetents always do: they can lock the barn after the horse has been stolen.