Drewry: No Let-up to the ULCV Ordering Frenzy

"The container shipping industry continues to suffer new, big ship deliveries"

Drewry Shipping Consultants Ltd. (Drewry) Wednesday said the container shipping industry will continue to be hit by falling rates caused by overcapacity as shipping lines continue to order large ships.

"Despite positive growth momentum, the container shipping industry continues to suffer new, big ship deliveries with no let-up to the ordering frenzy," said Drewry, launching is Container Forecaster publication for quarter one, 2015.

More than 60 Ultra Large Container Vessels (ULCVs) are understood to be due for delivery this year.

And new orders for ULCVs of at least 18,000 twenty-foot equivalent units (TEU) in capacity have already hit 40 this year, before taking into account orders from Maersk Line and COSCO.

The new ships are mostly due for delivery by 2017.

"The industry paid a heavy price for the huge ordering it undertook in 2006/07 and it seems that four years after Maersk spent $3.8 billion on its Triple Es, history is repeating," said Neil Dekker, Drewry's Director of container research.

Dekker pointed to one mitigating factor in the form of new alliances, which mean not all of the top 20 container lines will embark on separate ship-buying programmes.

Nevertheless, according to Drewry, when these new ships are delivered it will be difficult to continue to achieve load factors of around 92 percent which are estimated to have been achieved on average on East-West routes in 2014.

Drewry also highlighted the resolution achieved over U.S. West Coast congestion and lower bunker prices as positives for the industry.

However, despite monthly general rate increases from major carriers on its contract business, "spot freight rates are in serious decline," said the consultants, which could lead to friction between carriers and major contract customers.

Dekker pointed to a decision by 2M partners, Maersk Line and MSC, to downgrade the size of vessels used on one of their European strings to the East Coast of South America as a sign that bigger vessels have the potential to cause headaches for box carriers.

"This is the first sign that on routes where trade growth is weak, the lower slot cost per unit argument is simply not enough because freight rates dive to well below sub-economic levels," said Dekker.

Earlier this month, Drewry said there was clear evidence that container lines are passing-on bunker savings to shippers.