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Container Shipping Industry Capacity Being Outpaced by Supply Orders

Container shipping has seen overcapacity for the past four years, but now the pendulum has reversed course, lending to the industry divide about whether carriers need to increase orders.

The discussion of excess capacity has resurfaced due to a recent surge of mega-ship orders—despite data showing growth in demand is probable to exceed available capacity for the next several years. In 2021, volume will see a 7.5% increase, while deployed capacity looks to rise 3.5%. Per data from IHS Markit—the parent company of JOC.com–this marks the first time since 2017 that supply will be outpaced by demand growth.

With demand set to slow to 4.9% in 2022, capacity to grow to 3.2%, and demand to fall to 3.1% in 2023 while capacity grows 2.1%, the next two years should see a better balance between supply and demand. This should impact the price of international shipping, a trend that consumers will be able to note with the help of platforms that compare courier quotes online.

At 3 million, the container shipping orderbook remains on the lower end. Carriers are keeping older vessels in light of the strong demand on the major east-west trades.

Rolf Habben Jansen—CEO of Hapag-Lloyd—said during a recent briefing that scrapping of vessels was expected to increase in the next two years, and in 2022, scheduled vessel deliveries would drop to an all-time low. At the moment, overcapacity is not a concern. To keep up with demand and fleet replenishment, Habben Jansen suggested that carriers need to order more ships.

“The orderbook is too small,” he said. “You need to replace what is taken out. We need 14 to 17 percent, and today we are at around 11 percent of the current fleet on order. But it is not like the 50 to 60 percent orderbook that we saw in the past.”

CEO of Zim Integrated Shipping Services—Eli Glickman—is also concerned that there might not be enough supply in the medium-term to meet demand. He points to the low ratio of orderbook to the total fleet. Zim and Seaspan struck an agreement recently to charter 10 vessels with capacities ranging between 10,000 to 15,000 TEU.

Analysts believe that larger and more fuel-efficient ships need to replace older vessels, but as new ship orders come in, debate remains within the industry over whether it is heading for another surge of overcapacity.

In December, Hapag-Lloyd ordered six liquefied natural gas (LNG) powered ships of 23,5000 TEU. The ships will be delivered between April-November of 2023. Ocean Network Express (ONE) placed an order in December as well, for six 24,000 TEU ships that are scheduled to be delivered in 2023-24. OOCL also ordered five ships of 23,000 TEU with a 2023 delivery.

Vice president of research and analysis Maritime and Trade at HIS Markit—Rahul Kapoor—believes that for the next few years the supply and demand balance will remain in favor of the carriers, even despite new vessel orders.

“The orderbook has fallen way below the replacement levels over the last 24 months and what we are seeing now is normalization of the orderbook,” he said. “We are not seeing any major signs of speculative ordering and that should help supply/demand balance remain in sync.”

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Container Shipping Industry Capacity Being Outpaced by Supply Orders

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