A flurry of orders at shipyards has raised the spectre of container shipping "shooting itself in the foot" by acquiring excess tonnage.

Newbuilding contracting of containerships rose by 90% in 2020 compared with the previous year, according to Braemar ACM Shipbroking.

The fourth-quarter orderbook of 67 vessels of 930,000 teu is the highest three-monthly tally since the third quarter of 2015.

The surge has continued this year with 1.7m teu contracted in under five months to 18 February, compared with 242,000 teu in the first nine months of 2020, according to estimates by Maritime Strategies International (MSI).

MSI suggests this is not excessive by historical standards and does not compare with the damaging surges in 2011, 2013 and 2015. But it added that alarm bells will start to ring if ordering continues this year at a similar pace to recent months.

'Orders are needed'

Boxship orders have picked up as freight and charter markets have boomed. Yet the tally could have been significantly higher were it not for ongoing uncertainty over future fuel choices and legislative concerns.

A report by Germany's KfW Ipex Bank cites the restraint of the top five leading liner operators in ordering and the reluctance of tonnage providers to invest, except when backed by liner charters, for holding newbuildings numbers down.

Some see this restraint as potentially problematic.

Hapag-Lloyd chief executive Rolf Habben Jansen — whose company placed orders for six 23,500-teu ships in December — believes that the proportion of the container fleet on order remains very low. It amounts to just over 10% of the current fleet, compared with about 60% at the start of the financial crisis a decade ago.

“The industry needs some vessels,” Habben Jansen told journalists on 18 February.

He said the rate of industry growth over the past five years suggests the required newbuilding portfolio should be between 14% and 17% of the total fleet.

“I think we’re going to creep towards that, but that’s not going to give any relief soon,” Habben Jansen said.

Owners of smaller tonnage also warn of negative fleet growth and believe newbuildings will be needed to cope with the growth in demand.

MPC Container Ships chief executive of Constantin Baack believes there will be fewer speculative orders. Photo: MPCC/Sinje Hasheider
Hapag-Lloyd chief executive Rolf Habben Jansen believes newbuildings cannot come quickly enough. Photo: Hapag-Lloyd

However, there will be fewer speculative orders, said Constantin Baack, chief executive of Oslo-listed MPC Container Ships, which owns a fleet of smaller containerships.

“Going forward there will be new orders, but it will depend on appetite of liners to take them on their own books or provide charter backing,” he told a Capital Line container shipping webinar on 2 February.

Shooting themselves in the foot

So the prospect of the industry repeating the mistakes of the past is deemed remote because the newbuildings are increasingly needed, industry leaders and analysts say.

MSI argued that the container sector is likely to “avoid shooting itself in the foot”. However, it added that there are risks that some liner operators may need to inject larger ships over 12,000 teu into the Asia-Europe trade.

Others note the orderbook is focused on smaller feeder vessels and larger containerships of more than 10,000 teu. Replacement tonnage is needed for such aged and midsize workhorses, where about 60% of the fleet in the 5,200-teu to 7,600-teu range is older than 15 years, according to KfW.

“We believe 2021/2022 will bring about more new orders in the 4,000-teu to 7,000-teu range in order to replace some of the ageing and less modern low-spec tonnage,” the bank said.

Owners may be reluctant to invest given technological, regulatory and economic uncertainties related to Covid-19.

KfW said that is in part due to the lack of clarity over which fuel will be used as an alternative to heavy fuel oil and marine diesel oil, since “backing the wrong horse would be an expensive mistake”.

Incentives to invest

It added that regulatory uncertainties as to whether the European Union, China and the International Maritime Organization will legislate on carbon emissions would also “have ramifications on the incentives to invest”.

“These uncertainties lead to the reluctant investment activity currently observed and eventually higher investment pressure in the future," KfW said.

Braemar anticipates that newbuilding orders will probably pick up significantly this year and next.

But it believes undersupply is likely to remain the main theme of container markets until 2024.