Idle capacity has been a feature of the containership sector since the economic downturn in 2008-09. Prior to that, box freight rates tended to vary according to fairly macro factors, and liner companies appeared less inclined to resort to micro supply management to address imbalances. But in recent years, there have been clear phases of containership ‘idling’, each highly reflective of conditions in the sector.
The Worst Of Times
Global box trade dropped by 9% in 2009, and liner companies were left with little option but to idle significant levels of capacity to resurrect freight levels from rock bottom levels (Phase 1 on the graph). By the end of 2009, 1.5m TEU, or 11% of total fleet capacity stood idle. This did at least help push freight rates back up.
Not The Best Of Times
It did of course have a negative impact on the charter market, leaving owners, with an easy supply of laid up ships lurking in the background for charterers to access, unable to bid up rates. But, with some believing the world economy to be recovering quickly, substantial amounts of idle capacity were soon reactivated and by the end of September 2010, there was only 1.6% of the fleet idle (Phase 2). However, with freight levels having dropped again, further lay-up followed, and by end March 2012, the position had been reversed and 5.9% of the fleet was idle (Phase 3). Charter owner tonnage accounted for around 70% of the total by the summer of 2012, and most of the idle capacity was in classic charter market sizes, with only 3% above 5,000 TEU, putting pressure back on charter rates.
In the next phase, market conditions very slowly appeared to become more helpful, and idle capacity gradually fell, with the winter peak receding each year (Phase 4); idle capacity peaked at 6% of the fleet in early 2012, 5% in 2013 and 4% in 2014. But the charter owners’ share stayed high, keeping pressure on the charter market. It took until well into 2014 for rates to see much positive traction. By the end of 2014, idle capacity was finally more limited, at 1.3% of the fleet, reflective of the improved environment.
Time For A Change (Again)?
Today, despite severe freight rate pressure, idle capacity is still fairly limited at 2.5% of the fleet, but it is on the rise and the charter market is softening, ceding some of its gains. Larger ships had begun to account for a greater share of the idle pool (24% over 5,000 TEU in May) but recent weeks have seen a return to increased smaller ship idling.
So how will Phase 5 play out? There are a range of scenarios. Liner companies might continue to compete aggressively on the mainlanes with an apparent surplus of big ship capacity, and endure freight rate pain without idling too much more capacity. Or to protect freight rates they might start to idle a greater number of larger ships. Alternatively, they might once again pass down the pressure to the smaller ship arena, leaving more significant levels of capacity there to impact on the charter market. Much might depend on the flexibility of tonnage. Either way, once again, the development of idle boxship capacity will be a sign of the times. Have a nice day.