Despite the increasing number of new ship orders, shipping companies will stabilize freight rates by flexibly adjusting capacity

Shippers expecting a large number of new container ship deliveries over the next two years and slower demand growth to lead to a significant drop in ocean freight rates may be disappointed as carriers will have the flexibility to adjust capacity in response to the slowdown in freight volumes, it was reported. JOC said a shipping line executive said in an interview with it, "The Shipping Union has demonstrated that the industry has the ability to manage demand fluctuations by cancelling sailings and idling vessels, and that capacity management will respond to any situation where supply exceeds demand." Another shipping line spokesman told JOC: "Adjusting capacity to demand is an integral part of our daily business." Alan Murphy, CEO and founder of maritime intelligence analyst Sea-Intelligence, said the most lasting impact of the new crown epidemic on the global shipping industry will be that shipping companies will sacrifice the "liner" portion of liner shipping when cargo volumes come under pressure. In other words, shipping companies will give up the integrity of the weekly schedule by cancelling sailings to stabilize freight rates. Despite the increasing number of new ship orders, shipping companies will stabilize rates by flexibly adjusting capacity The second quarter of 2020 was one of the largest declines in container volumes in liner shipping history, but freight rates remained firm during the plunge in cargo volumes as carriers cancelled up to 50% of their sailings in a few weeks," Murphy said. Shipping companies withdrew significant capacity when the outbreak began to emerge in 2020, then changed direction and deployed all the equipment they could to float to support strong and sustained demand on major East-West trade routes. Older vessels have been in service and the number of idle vessels has remained at record low levels. Chronic port congestion and container shortages resulting from record trans-Pacific cargo volumes have also helped to maintain higher freight rate levels. Although rates on major routes are currently lower than they were at the beginning of the year, they are still higher than they were at the same time last year. Shipping line executives expect spot rates to fall in the second half of the year, but some lines have already locked in high rates through long-term contracts, virtually ensuring profitability this year. Despite the increasing new ship orders, shipping companies will stabilize freight rates by flexibly adjusting capacity ▲The difference between long-term and short-term freight rates on Asia-Europe routes narrowed However, the new capacity to be delivered to shipping companies in the next two years will require some management, Alphaliner said, adding that the global fleet capacity will grow by 8.5% by 2023, while demand will grow by 4.5%. According to IHS Markit, the current capacity of new ship orders is 6.6 million TEU, equivalent to 26.7% of the global container fleet capacity, which is up from 22.7% last year and is the highest level since 2008. Most of the capacity will be delivered in the next two years, and some industry insiders said that as these new ships come online with the weak global economy, the market will return to the pre-epidemic overcapacity and freight rates will fall sharply. But shipping executives noted that shipping companies are still struggling to meet capacity demand and will have to phase out older, less environmentally friendly container ships as decarbonization efforts intensify in the coming years. "Yes, the share of orders is relatively high, at about 25 to 26 percent. New orders placed in the first quarter reached 1 million TEU, but vessel supply remains tight and idle vessels remain at low levels. The expected slowdown in demand growth and the influx of new capacity from 2023 onwards should ease the tight capacity situation, but on the other hand, sustainability developments may accelerate ship scrapping, so that new, more environmentally friendly vessels delivered will replace older ones." "For example, the new larger container ships we order will likely replace smaller and less efficient container ships. All in all, capacity supply and demand fundamentals are expected to become more balanced in the coming years. In addition, shipping companies are receiving increasing pressure from customers and regulators to move to greener operations and phase out older vessels. Large customers such as Walmart and Amazon have made it clear that they want their service providers to be carbon neutral by 2030 or 2040, which will have a significant impact on the effective capacity deployed in 2023 and 2024."