This page recently took a look at surplus in the bulkcarrier sector, and how it was impacted by the ‘right’ speed for the market environment. In the containership sector, there also remains a significant level of surplus capacity, and here, if anything, speed is playing an even more critical role.
In 2009 container trade experienced its first real major downturn, dropping by 9%. This created a huge surplus of capacity in a short period of time, which the containership sector has been struggling with ever since. The graph shows an estimate for the size of the ‘surplus’, calculated by assuming the vessel productivity at levels around those of 2000 when the market appeared to be close to equilibrium. At those speeds, the surplus by end 2009 appeared to reach about 2.6 million TEU of capacity (17% of all container capable capacity). This compares to a deficit of just 0.5m TEU in 2005 which drove record charter market levels.
So, the liner companies who operate the container services were left with a mighty headache. Their immediate response was to ‘idle’ as much capacity as possible in an attempt to prop up the market balance and support freight rates. By end 2009 1.5m TEU was idled though this figure has since dropped. This eventually helped the liners but did no favours to the charter owners who found it impossible to bid vessel charter rates back up with a huge pool of laid up capacity free for charterers to choose from.
But perhaps the more durable response has been slow steaming. At the speeds many containerships were operating before the downturn (some running as fast as 24 knots), this was an obvious move. Liner companies quickly added extra ships to services whilst dropping speeds. This maintained service schedules, but also absorbed capacity and reduced overall costs through lower bunker expenditures. By end 2012, calculations suggest that 1.6m TEU was being absorbed by slow steaming.
How Much Left?
With idling and slow steaming in play, the surplus is much reduced. A projected end 2013 surplus of 3.0m TEU drops to a ‘current’ surplus of 0.7m TEU when allowances are made for 1.9m TEU now absorbed by slow steaming and the 0.4m TEU still idle. Of course, if the services sped up again, that would release lots of capacity but the key determining factor for containership speeds is today’s high fuel price environment, and the previously high speeds continue to make no sense to operators.
So, the remaining surplus plus idle capacity is 1.1m TEU, and that’s about a third of its potential level at pre-recession speeds. That’s the good news. The bad news is that trade still has some way to go to outperform supply by enough to close the gap. We still need the world’s consumers to generate demand for more containerised cargo. Have a nice day, and don’t forget your shopping!