The portfolio of orders or new constructions of container ships worldwide has continued to increase since the middle of this year, despite the weakness of market demand. While container lines are still very profitable, freight rates and charter rates are now on a clear downward trajectory, indicating that the market is in decline, says Alphaliner. Excess delivery of new containerized vessels is anticipated in 2023 & 2024.
According to the maritime consultancy, in a historical context, time charter and cargo rates are still high, but the general feeling is that the market is about to correct itself and normalize at some point in 2023. In many trade routes, the Freight volumes are weakening and spot rates are falling rapidly.
They say the traditional peak season for liner shipping has barely materialized in 2022 and many industry watchers feel the drop is structural, rather than seasonal, amid fears of a global recession.
The risk of war, high energy costs. Political instability and general inflation will affect overall consumer spending and therefore trade volumes, particularly for manufactured goods. Adding to this, the relaxation of COVID-related transport restrictions appears to have caused consumption patterns to shift towards services, particularly travel and vacations, at the expense of material purchases.
Some of the worst port bottlenecks have also been cleared (or at least eased) and the number of loaded ships stuck in gridlock is slowly declining.
All of this means that a host of new, large container ships will hit the water in 2023 at a time of stagnant demand.
Tonnage supply could again outstrip ship demand next year and the container line shipping market could be headed for structural overcapacity.
They also mention that the ship order boom of the past two years had pushed the global orderbook-to-fleet ratio to just under 30% at the end of September, from a low of around 9% some two years earlier.
In absolute terms, Alphaliner mentions that today’s 7.0 Mteu ship order book has surpassed the previous record of 6.6 Mteu from 2008, which the market reached during the great recession of 2007-2009.
Relative to a world container fleet that has since more than doubled to 26.0 Mteu in size, the order book to fleet ratio stands at “only” 30%, compared to “crash” 60% of 2009.
These numbers are conservative as Alphaliner only counts confirmed orders and the figures exclude ‘rumored’ deals and ‘letters of intent’ by the lines.
In terms of capacity, 56% of today’s (allocated) ship order book is destined for the world’s top 5 carriers, either through ownership or charter commitments.
The ‘great unknown’ factor in the equation is the question of how the new IMO carbon indices, due to come into effect in early 2023, will affect the dynamic capacity of ships.
With the aim of reducing the carbon intensity of shipping, the new regulations will lead to speed penalties for some less efficient container ships. Subsequently, the market may need more ships to transport a given amount of cargo at a lower speed, says Alphaliner.
Some analysts predict that a mandatory ship slowdown of, say, 10 percent will directly lead to an increase in tonnage demand of the same magnitude.
This is not necessarily true as, despite last year’s tonnage shortage, most large container ships are already operating noticeably slower than their technical design speeds, Alphaliner analyzes.
He then mentions that while most large mainline container ships have enough engine power to reach speeds of 22 knots, today’s itineraries have been designed around speeds of 17 to 20 knots on long-distance deepwater legs. .
Seemingly they explain that: Many modern large container ships will not incur any mandatory speed penalties at all for the next year, or will have their top speed limited to a pace that is faster than ships typically sail today.
However, many older and more fuel-efficient container ships are already deployed on regional services with slower sailing speeds and long waiting times.
This is not to say that the IMO’s efforts to reduce the carbon footprint of the shipping sector will have no effect on the “dynamic capacity of ships” and thus the balance between tonnage supply and demand.
The size of the containership order book is likely to far outweigh these effects, at least in the short term of 2023 and 2024.
Today’s record-size 7.00 Mteu newbuildings, a rapidly declining charter market, the downward trajectory of spot freight rates and the risk of a global recession in 2023 have not yet deterred carriers. to add more to the already gigantic container ship order book.
Several major companies in the industry are known to be “in talks” with shipyards to acquire several new series of large container ships:
MSC has reportedly closed a deal for twelve 16,000 teu LNG ships with YZJ (unconfirmed and therefore excluded from our numbers), while Maersk is said to be looking at ten 17,000 teu powered ships. by methanol and ten ships of 2500 teu.
Yang Ming recently invited bids for a series of at least five 15,000-teu LNG-powered ships, while COSCO Shipping is considering a multi-million dollar fleet renewal and expansion project. Orders for six 23,000-TEU methanol-powered vessels and nine 15,000-TEU conventional vessels are expected to be placed in the first phase. Mainline newcomer Transfar is believed to be preparing orders for five methanol-powered 8,000 TEU-class container ships.
According to Alphaliner, it is still deliberating whether or not the market can absorb this.