EXCESSIVE container shipping supply will continue to drive volatile and bearish rates on key trades for some time, and a new round of orders for vessels larger than 24,000 teu could further disrupt the market, analysts told the Container Supply Chain Conference at TOC Europe in London this week.

Martin Dixon, head of research products at Drewry, said growth in global demand of 3% last year was forecast to accelerate to 5% in 2014 and 2015 and 6% in 2016, but that this would not be enough to balance supply growth. “The industry will fail to reach any sort of equilibrium until 2016,” he said.

The impact of this, Mr Dixon said, is that carriers will be forced to miss more sailings and impose frequent general rate increases, while also working through alliances to reduce capacity.

“Average freight rates fell 6% last year and we anticipate further falls this year,” he said. He added that carriers have been managing this loss of revenue by curbing unit costs.

”Overcapacity will plague the industry for several years to come and unprecedented freight volatility will continue.”

Moffatt & Nichol maritime transport consultant and conference moderator John Fossey also predicted that excess capacity would continue for the next two years.

“Rates are falling and continuing to fall,” he said. “But what is more worrying is volatility. Higher and lower rates, peaks and troughs make planning harder.”

Ocean Shipping Consultants project director Andrew Penfold said the concentration of new orders on larger vessels was of most concern to those seeking more stability as it is prompting a cascade effect into secondary regional deepsea trades.

“Since 2010, we have seen a rapid increase in the average size of vessels on north-south trades,” he said.
“Generally speaking, the ports and terminals in these markets have not been ready for these vessels, which has resulted in upsets to schedules.”

He also predicted that the size of the largest vessels in the global fleet would continue to grow.

The technical jump from the largest 18,000+ teu vessels now in operation to 24,000+ teu vessels is negligible and Mr Penfold predicts that vessel sizes will need to expand only marginally to around 430 m length and 62 m width.

This, he said, would have a limited impact on draft because average box weights are light.

The main technical challenges to making a major jump in boxship size are ensuring that such vessels are easy to manoeuvre and that quay walls are strong enough for the container gantries needed to handle them.

Larger ships could mean fewer mainline ports of call, larger feeder vessels and more hub-and-spoke systems and liner alliances, Mr Penfold added.

A new round of orders, “perhaps not now, but maybe in 2016 or around then”, he said, would skew the supply-demand forecasts of most analysts and add to the freight-rate volatility already disrupting global container shipping markets.