Containership capacity influx threatens freight recovery

According to figures released by Alphaliner, the surge in new ships entering the market comes on the back of vessels totalling 747,000 TEU which have been delivered in the first half of this year. Total new ship deliveries for the first seven months of the year will reach 950,000 TEU, or 7.3% of the fleet.

Alphaliner estimates that 1.45 million TEU will be delivered within the full year 2010. This represents 11.1% of the world fleet at January 2010, with slippage and cancellations limited to only a small part of the container ship orderbook. The July record will be achieved due to the deliveries of at least 8 units of over 10,000 TEU. Only 7 units of this size were delivered in the first six months of the year.

Deliveries of these large containerships are expected to continue, with 12 more units of over 10,000 TEU planned for August and September. These units are to be handed over to only four major operators, i.e. CMA CGM, Maersk, MSC and Zim (with Evergreen taking one of the Zim ships on charter).

These VLCS/ULCS deliveries bring the average size of the new ships delivered in July to more than 6,000 TEU. The previous monthly record was registered in April 2008 when 156,000 TEU of capacity was delivered. At that time however, the average size of the new vessels was only 3,700 TEU.

Together with the lower scrapping levels expected this year, the full-year overall capacity increase is expected to reach 9.6%. Total demolitions recorded year-to-date have only reached 120,000 TEU. With containership demolitions dwindling, the full-year scrapping level is forecast to clock in at less than 200,000 TEU for 2010, compared to 377,000 TEU scrapped in 2009.

The situation this year is significantly different from 2009, when a large number of vessel orders were cancelled or deferred. In 2009, total newbuilding deliveries reached 1.07 million TEU while 0.38 million TEU were scrapped. Furthermore, the massive oversupply led to the idling of tonnage, which averaged 1.26 million TEU during that year. The re-activation of the idle fleet has already brought back 1.24 million TEU of capacity since the beginning of January. In combination with the net increase brought about by vessel deliveries, this brings the total additions to the active fleet this year to over 2 million TEU. The figure corresponds

to a net fleet increase of over 16% for this year.

The massive influx of new capacity has had no major impact on freight levels so far. Demand growth has absorbed a large portion of the increase e increased by 19%). Average freight rates out of Asia remain firm in July, due to the effects of earlier rate increases and peak season surcharges applied on the main trades. However, the Shanghai Containerised Freight Index is starting to show signs of weakening. After 11 consecutive weeks of spot rate increases, freight rates began to show small declines in the two weeks following 9 July. Some rate reductions are reported on the Asia to Mediterranean spot market, as the impact of the Euro crisis starts to be felt with some weakening in volumes.