The Hindu Business Line : Container vessels tonnage glut may lower building prices

Maersk Arizona, one of the longest container vessels, at Kochi port... Maersk, which recently acquired P&O Nedlloyd, has the largest order book, at 443,513 TEUs. But how long will the growing demand for tonnage last?

THE TOP 20 shipping companies control around 80 per cent of the container shipping capacity of 7.5 million TEUs (twenty-foot equivalent units) and Indian flag-carriers are not even close. There are 10 container vessels under Indian flag — three, of 1600 TEUs each belonging to the Shipping Corporation of India, and seven to Shreyas Shipping.

While SCI vessels operate in international waters, those of Shreyas, all of much smaller capacity, are feeders. In terms of TEUs, the total capacity of all container vessels under the Indian flag will be around 10,000, piffling by international standards.

This is the situation when the orders placed for new container vessels are expected to expand the global capacity by 60 per cent over the next few years. According to one estimate, the size of the container capable fleet is expected to increase by 10.2 per cent in 2005 and fully cellular fleet by more than 12.7 per cent. In 2004, the order book was 3.2 million TEUs or 46 per cent of the fleet; in 2003, it was 1.4 m TEUs or 22 per cent; and in 2002, 1.1 m TEUs or 20 per cent.

Maersk, which recently acquired P&O Nedlloyd, has the largest order book in TEU terms, at 443,513. Reports have it that several other European container majors, such as Mediterranean Shipping Company and CMA-CGM, along with Chinese carriers, are aggressively pursuing plans to increase fleet size.

CMA-CGM recently completed the acquisition of the French shipping group Delmas, of the Bollore Group. TUI, which owns Hapag-Lloyd, has bid for CP Ships to consolidate its position in the container shipping. The Hamburg-based charter ship-owner Claus-Peter Offen announced an order for four 9,700-TEU vessels worth $132 million apiece for delivery in late 2008 from South Korea's Hyundai Heavy Industries.

The vessels will be the biggest container ships ever contracted by a German owner. Earlier, there were reports that Offen had contracted four more ships in the 9,000-TEU range. SCI is the only Indian flag carrier that wants to acquire higher capacity vessels, of 4200 TEU each, but it being a government-owned company, the process of acquisition is unlikely to be quick and smooth.

Meanwhile, there are indications that newbuilding prices may ease as, according to some experts, the great shopping spree may have come to an end. Charter owners and ocean carriers, it is pointed out, have reined in their spending on new acquisitions and July figures are quoted in this regard.

The orders for container ships in July dropped to 16 ships with a total capacity of 37,500 TEUs compared to 62 ships totalling 177,000 TEUs in June. That was the first time since June 2003 that fewer than 20 container ships were ordered in a month. In August, too, the market was quiet.

It is feared that there will be a glut of tonnage from 2007 following large-scale arrivals of new deliveries.

Unless more buyers enter the market, spare capacity will be available in the yards from 2008 and in some cases even from 2007. This will happen because many yards that had held back their berths hoping that the market would continue to strengthen and, therefore, would continue to get higher prices are now realising, much to their chagrin, that the market might not behave in the way they had expected.

The berths not marketed earlier will now be made available for newbuildings, generating downward pressure on new building.

If that happens, SCI may stand to gain. By the time the shipping line firms up its plan for acquisition, the market may be a little softer than at present, though it is too early to predict anything definite.

The global fleet will swell by an estimated 1.4 million TEUs in 2006, as ships ordered two years ago will be due for delivery around that time.

The trend will persist in 2007 and 2008 when deliveries are likely to reach 1.3 million TEUs each year, pushing up the global fleet capacity to more than 12.5 million TEUs, a jump of 600 per cent in less than 20 years.

In 2001 and 2002, when the world shipping was passing through a bad phase, the orders for shipyards too were drying up. Things would have been really critical for them as many big-ticket carriers were close to bankruptcy.

But, then, the unexpected happened — China emerged as biggest trading power. The entire scenario changed. Charter rates zoomed and shipping freight skyrocketed and with it the demand for tonnage. The shipyards were flooded with orders.

The situation has not changed much since. The ship supply position continues to be tight. But the question that is haunting shipbuilders and shipowners is: Will China continue to keep the market up, even after 2007 and 2008?

It is a pity that the future growth of the world economy is so tied to the future of one country's economy.

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