Box ship trades started to recover last year – but the large number of ULCSs due for delivery for this year pose a threat
The markets have been looking up within the container shipping sector – but the large number of ultra large container ships (ULCSs) due to be delivered this year is a threat to the delicate recovery that started last year.
According to VesselsValue data, 71 ULCSs with a total capacity of 1.2M TEU are due to be delivered this year. This is the highest volume on record for ULCS deliveries – and vastly outstrips the ULCSs due to be delivered next year (20 at a total TEU of 376,300) and in 2020 (24 at a combined 466,450 TEU). It also towers over the 467,291 TEU delivered last year.
VesselsValue analyst Court Smith told Container Shipping & Trade “The total outstanding orderbook for container ships shows a significant amount of capacity yet to be added to the global fleet.”
He noted that the quantity of carrying capacity which is aged 15 years and older is small compared to the newer and larger ships. “It is hard to imagine a sustained rate recovery based on fleet supply fundamentals, but industry consolidation is a plus.”
And this year’s number of ULCSs is head and shoulders above orders for other categories of container ships – the second-largest sector is the sub panama box ship with 56 ships due for delivery (VesselsValue).
As Mr Smith said “Order activity has been concentrated around small ships and larger units. There has been little interest in acquiring ships between 4,000 and 11,000 TEU. The current fleet profile has a larger concentration of ships under 11,000 TEU.”
The deliveries of ULCSs due this year means that more cascading of ships on to other trades is likely. As ClipperMaritime’s Horizons February newsletter pointed out, many of these ULCSs are headed for the Asia-North Europe trades, with 26 ships of 525,000 TEU with a nominal capacity of 20,000 TEU due to be delivered. It said should all these ships be delivered this year the Ocean Alliance will need to redeploy 21 vessels of 14,000 TEU to make room for the newbuilds; 2M will have five big ships to redeploy across its networks; while THE Alliance has deployed its latest ULCS – MOL Treasure – on its FE2 string.
ClipperMaritime said it believes most of the 26 ships needing to be redeployed will be cascaded to Asia-Mediterranean, Asia-West Coast North America and Asia-Middle East trades.
This could destroy the more balanced supply and demand situation achieved last year when there were fewer ULCS deliveries. As ClipperMaritime pointed out, ULCS additions to the orderbook “will likely delay overall supply/demand unbalancing for some trade lanes as the continued cascade adds more pace”.
“It is hard to imagine a sustained rate recovery based on fleet supply fundamentals, but industry consolidation is a plus” Court Smith (VesselsValue)
The delivery of so many ULCSs could also negatively impact freight rates. ClipperMaritime noted that considerable deliveries of ULCSs during Q3 2017 coincided with declines in spot freight rates – something that could be repeated in 2018.
Despite the gloomy outlook, some of the ULCS newbuilds due this year have been pushed back – and more could follow (known as slippage).
COSCO and Yang Ming have delayed delivery of mega box ships from 2018 to 2019. Alphaliner said in its January 2018 newsletter that COSCO was reported to have deferred 10 of the 28 ULCS due to be delivered this year. Yang Ming has also delayed three 14,000 TEU ships from this year to 2019.
Chief executive at SeaIntelligence Consulting, Lars Jensen said COSCO and Yang Ming’s delivery delays are “a positive sign for market developments in 2018”.