Excess Capacity Could Last Until 2030 Or Longer

The container shipping sector could be embarking on a longer, more challenging period, according to a new analysis from maritime consultancy Sea-Intelligence. The Danish analyst firm has released a forecast highlighting that the container shipping industry's current level of overcapacity could take at least four years to reach equilibrium and could be delayed until 2030 or beyond.

Alan Murphy, CEO of Sea-Intelligence, commented, "The market is entering its traditional downward cycle, as 2023 will see a significant amount of overcapacity, and 2024 is likely to do the same." The company paints a disturbing picture for the industry to answer the question of when the current overcapacity will reach equilibrium and how the industry will overcome its current challenges.

Many in the industry had predicted that the worst of the rate crash would be overcome by the end of this year, but it is the capacity issue that looms large. Now, more and more are predicting that the industry will be forced to turn to more aggressive dispositions, as ships slowing down and even idling ships can no longer be balanced with the onslaught of capacity coming into the industry over the next three years.

Alphaliner estimates that the wave of capacity growth has yet to arrive, even though large-scale ship deliveries have been completed this year. MSC, for example, has already taken delivery of the bulk of its 24,000 TEU mega-vessels (the largest in the industry), while others such as Orient Overseas, ONE, and Hapag-Lloyd have begun to take delivery of their new ultra-large containerships. However, Alphaliner's data shows that the top carriers still have an order book of around 7 million TEUs, which means a further 25% increase in total capacity before the possible disposal of older vessels.

In their market analysis last week, the Baltic International Shipping Association emphasized that the container shipping industry is still holding on to capacity. As a result, they noted that the fleet has become the oldest in memory, with an average age of over 14 years, making the container fleet older than either bulk carriers or tankers.

Based on recent historical data, Sea-Intelligence presented a potentially positive scenario in its analysis. An average annual capacity growth rate of just under 4% from 2024 onwards, matching the post-recession growth rate from 2011 to 2019. After a short-term supply surge, a modest 1.3% growth rate is expected after 2026.

Sea-Intelligence acknowledges that this is "a fairly optimistic assumption", but their charts show that oversupply will peak at nearly 14% and it will take years to return to a balanced supply-demand position. Murphy points out that the worst of the overcapacity will be seen in 2024, and by 2026, one-third of the excess capacity will be absorbed.

Sea-Intelligence concludes, "Unless global container demand explodes, another epidemic leads to capacity absorption, or shipping lines ground a significant portion of the global fleet and stop ordering new ships, a supply-demand equilibrium similar to that of 2019 could be seen in 2028. Achieving equilibrium in 2028 would mean it would take eight years, which is the same cycle as the return to equilibrium from the financial crisis to 2017."

While Sea-Intelligence believes 2028 is achievable, they also point out that if demand growth is low or if the industry continues to increase orders to achieve modest supply growth, the result will be a delayed recovery. They believe any of these factors will delay the industry from achieving capacity balance until 2030 and beyond.