top of page

Can shipping be fixed?.......Capacity (Part II)

As I wrote in my last article, Liner Shipping Companies are notoriously self-destructive. Pricing was one example of how this manifests itself, price wars between Carriers would be another, but an even bigger problem is the amount of over-capacity there is in the market.

Despite the already saturated market and difference between supply and demand, Shipping Companies continue to pump in more and more TEU capacity than ever before. This is a cycle that has been in existence from well before I joined the industry, some 21 years ago, and it’s something that I do not see an end to any time soon.

Both MSC and CMA CGM have 22,000 TEU vessels under-construction and January 2018 saw the biggest introduction of new tonnage that has been seen. The rationale for ever bigger vessels is the economies of scale but the step from 10,000 TEU to 18,000 TEU does not compare with a further step to 22 or 23,000 TEU. To achieve the same economies of scale you would need to bring in vessels of up to 40,000 TEU.

These economies of scale also do not translate into reality unless the vessels are actually used in a proper “Hub & Spoke” network (See Related Article) and that also seems a far-off possibility.

From a Shipper’s perspective, this is all a good thing. An overabundance of capacity means rock bottom prices and way more space available than there is demand for. For the Carriers, this is just a repeat of decades of pouring ever larger vessels into already under-utlilised trade lanes.

Unless there is a seismic shift in the mentality of the Carriers, they are doomed to continually repeat their irrational, impulsive and irresponsible behavior. In the long-run, it is unsustainable and a problem entirely of their own creation.

Ego would seem to play a large part in this problem. “We must be the biggest carrier” and “We must have the Worlds’ largest container ships” are the mantras heard coming from the C-Suites of the carriers…….but why?

Ultimately, the only real purpose of a company is to create value and profits for the owners and/or shareholders. Anything else is really irrelevant.

There is an argument and certain amount of logic for building up the overall fleet size to evolve into a position of being a “Global Super Carrier”. At the opposite end of the spectrum are Niche Carriers that serve very specific markets. In between these two lies “Regional Carriers” such as Hyundai (who recently lost their Global Carrier status). This is a very dangerous position to be in, as can be seen from the 2018 1st Half results that are coming out.

They are too small to effectively compete with the massive Carriers but too generalized to compete effectively with Niche Carriers. This could explain the rationale of Hyundai embarking on a newbuilding program that will double their fleet size. Whether the South Korean government will continue to prop them up long enough for them to achieve this remains to be seen. Yang Ming also finds itself in a similar position.

It is difficult to make the same argument for building the largest ships. The World, and the economy, are changing fast. China’s position of being the “Factory for the World” is rapidly diminishing and they are becoming a much more consumer-based society with well off, middle income families. If certain Carriers do not wake up to this new reality soon, their days are numbered, and who cares if you were once the proud owner of the Worlds’ largest container ship?

As a footnote, whenever the introduction of mega vessels comes up, Maersk Line is usually right up there with MSC, CMA CGM and COSCO. For the time being, Maersk Line is maintaining and appearance of a “moral high ground” and not ordering new mega vessels………but that doesn’t mean that they haven’t already got something up their sleeve and are just waiting to make one small, but significant, change to be back on top with the largest nominal capacity vessels. Just watch and see.

Featured Posts
Recent Posts
Search By Tags
No tags yet.
bottom of page