Record-breaking numbers of new ships may be placebo

Container shipping lines have used massive profits accrued since 2020, to refresh their fleets with modern, high-spec vessels, but their investment may only slightly alleviate port congestion and equipment shortages.

Soaring freight rates, post-Covid lockdown, have generated cash on an unprecedented scale for the global shipping lines, with Maersk expecting 2022 to be another bumper year, earning almost $50bn in profits over 24 months, while 3rd quarter profits at CMA CGM rose tenfold in 2021 and first-half profits Cosco were 21 times higher than before.

The major carriers are investing their windfall profits, to renew their fleets with modern, high-spec tonnage and, with plenty of money still to be made, everyone is rushing to get their ships into the water as soon as possible.

Early delivery rates are much sought after and many carriers have signed contracts for new container ships at yards, better known for building bulkers, tankers, or RoRo ferries. 

By February, the global orderbook-to-fleet ratio had crept up to 25%. This is a long way short of the 65% seen in 2008’s Bull market, when the lines were all chasing market share, but then again, @ 25 Mteu, the global fleet is twice the size now.

The uptick in orders commenced in mid-2020, when the order- book-to-fleet ratio was only 9%, with new build deliveries this year forecast at around 1.10 Mteu, which is roughly in line with the average delivered in 2016 – 2021. 

For a fleet size of 25 Mteu and assuming a realistic usable service life of 25 years for a container vessel, this year’s projection of an additional 1.10 Mteu, is essentially a zero-growth replenishment rate and will only slightly alleviate port congestion and equipment shortage. 

The new vessel deliveries will only slightly alleviate the pain caused by port congestion and equipment shortage because, there will not be enough new ships to replace the capacity shortfalls caused by system inefficiencies which are currently swallowing up about 10% of ’dynamic’ shipping capacity. 

The vast majority of container ships ordered in the recent boom will not join active service until 2023 and 2024, when we will see record deliveries of close to 2.40 Mteu 

Any slowdown in demand for space by shippers, could similarly push owners to defer some tonnage delivery until 2025. 

Over 50 of the very largest container ships, the so-called megamax, will join the global fleet by 2024, as Evergreen, MSC, ONE, Hapag-Lloyd, and OOCL pursue increasing economies of scale. 

Capable of carrying over 24,000 teu, these giants measure 400 meters long and 60 meters wide and their immense scale overwhelms many global ports, creating additional risks of supply chain disruptions and port congestion.

Port inefficiencies are magnified by megamax ships, because they strain every aspect of  operations. The megamax requires more of almost everything:

• Access channel depth and width
• Air draft
• Depth alongside
• Quay length
• Ship to shore crane systems height, outreach and width
• Landside storage capacity
• Yard equipment and terminal operating systems
• Road, rail and barge access
• Capacity to expand

Global logistics, freight operations and infrastructure are transforming, as the intense and sustained pressure that supply chains have been subjected to, expose weaknesses and inefficiencies.

We will continue to use our market knowledge, extensive industry contacts and global network, to share the most important perceptions and developments, so that you have the insights required to make the most critical decisions. 

We negotiate rate and volume agreements with carriers across all three alliances, which means we have the freedom to react to market conditions and changes. 

Please contact Elliot Carlile to discuss your supply chain expectations and ensure your business is ‘future proofed’.