The Hindu Business Line : Container ships: Concern on over-capacity

Utilisation of capacity on container ships has never been better. But going by the number of new orders being placed with various shipyards, there could be more ships in 2005 than the demand.

THE CEO of an international container line recently warned that the problem of over-tonnage in container shipping could emerge next year as almost all major container lines had "over-ordered without taking into account new ships' speed and size". He therefore suggested that the shipowners should take measures to ensure that the problem did not lower the rates dramatically such that the shipping lines might go out of business.

However such a prediction is unlikely to be taken seriously in shipping circles today when most carriers proclaim that their utilisation rates have never been higher.

Therefore the issue of dealing with the overcapacity in liner trade cannot be major concern, at least now.

But the truth is that there still exists an imbalance between supply and demand as the world container ship fleet in 2003 was estimated to grow at seven per cent and the global cargo growth at around five per cent. If the trend of new orders being placed with various shipyards is any indication, there could be more ships in 2005 than the demand, and shipowners may have difficulty in using their capacity 100 per cent.

Major container operators are investing heavily in higher capacity vessels of 6,000 TEUs, 7,000 TEUs and more than 8,000 TEUs to replace their 3,000 TEU, 4,000 TEU and 5,000 TEU vessels. This also explains the excessively high charter market and shipowners try to sell the ships or charter them out for a long period, about five to eight years.

The preference for larger vessels has been continuing for the past couple of years.

For example, in 2002, the average size of vessels above the 5,000 TEU capacity delivered and ordered was 5,060 TEU and 6,700 TEU respectively. Among these there were five 8,100 TEU capacity ships, the highest capacity ever publicly announced, for China Shipping Container Lines.

But according to some experts, vessels smaller than 2000 TEU capacity are likely to remain in demand due their operational flexibility and ability to serve the low-volume trades and feeder requirements.

With larger capacity ships arises the question of their deployment, which, it is felt, will be restricted to the east-west mainline routes owing to the volumes required to fill such vessels.

One possibility could be to use these very large vessels to call exclusively at a few very large transshipment hubs; another alternative could be direct services with smaller vessels calling at multiple ports at both ends of the route. China Shipping Container Lines has joined hands with Norasia and Gold Star to launch a new round-the world service.

Several regional carriers such as Samudera Shipping, Pacific International, which provide feeder services notably from Singapore to a number of countries with relatively undeveloped land-based transport networks, have also started to provide direct services at multiple ports scattered in the region.

Interestingly, for whatever reasons, scrapping of container ships is still not seen as a viable option for dealing with overcapacity in liner trades. For example, in 2002, the average age of container ships sold to breakers was 26 years. In recent times, the percentage of full cellular fleet scrapped each year varied between 0.5 per cent and one per cent. In the years to 1995, it was effectively zero.

In past five years, the annual growth of tonnage in container shipping has been around 12 per cent on an average whereas the scrapping has been at the rate of just one per cent, and that too intermittently. This 11 per cent imbalance in delivery and demolition is sustainable in the medium term, not over a long period. Meanwhile the new deliveries keep sailing in.

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