The next five years could be challenging for container shipping with no end in sight to overcapacity.
Shipbroker Braemar forecasts that overcapacity will average 16% to 17% for the next five years through to 2027.
Oversupply is forecast to peak at 19% for the years 2025 and 2026.
While boxship newbuildings were expected to flood the market this year and next, the length of time that supply and demand will be out of kilter appears disconcerting.
“Economic and vessel supply-side risks are tilted toward the downside and will continue to challenge the container markets for the next few years,” Braemar said in its quarterly container market briefing.
With overcapacity already starting to impact earnings, liners are adopting short-term measures such as blanked sailings.
Other measures such as slow steaming could also have an impact.
Reducing the speed of the fleet over 7,500 teu by 2.5 knots could reduce oversupply to 10% in five years, Braemar estimates.
Relentless
The relentless surge of boxship deliveries is at odds with the “bearish demand picture”, Braemar noted. Container trade is estimated to have contracted by 3.5% in the first six months of the year.
“We all know about the container ship tonnage on its way, and in most part will remain on schedule,” Braemar container analyst Jonathan Roach told TradeWinds.
“For the demand side, we are expecting tepid trade growth in the short to medium term. Our current estimate is that annual average trade demand could average in the region of 1.8% to 2% annual average growth in the five years 2023-27.”
The longer-term solution of vessel demolition will take time as liner companies and tonnage providers gauge the effects of new environmental legislation.
So, net fleet growth is expected to surge to 7.9% in 2023, rising to 8.4% in 2024, compared with 3.9% in 2022.
The pace of expansion is worst in the large boxship segment. Capacity for vessels sized 14,000 teu or larger is forecast to be at least 20% this year and next.
There is currently an orderbook of 300 vessels sized from 11,000 teu to 17,000 teu, it added.
Pinch point
That orderbook points to “a significant level of disruption” in the next three years as the new generation of vessels are phased in.
The “pinch point” will likely hit the traditional panamax to post-panamax sizes up to 8,500 teu, Braemar added.
“We will be expecting vessel retirement in these segments as trade demand may struggle to absorb older displaced tonnage,” the shipbroker noted.
That will see the supply and demand gap widen considerably from 2023 onwards.
Net fleet growth is forecast to average 4.5% to 5% per year from the current year through to 2027, without factoring in future ordering.
It points to “a challenging time ahead”, said Roach, who cites to the International Monetary Fund’s forecast of 3% global growth in 2024.
“The tightening of credit and increased cost of borrowing especially in the US and Europe, is very much likely to rein in consumer spending, which has resulted in our bearish trade demand outlook at this time,” he said.
