Container Ship Overcapacity to Last 12 Months, Report Says

Ocean container carriers face overcapacity for at least another 12 months as the supply of new ships outpaces slowing cargo demand, an industry analyst forecast.

The global container ship fleet will expand by an average annual rate of 8.7 percent over the next two years, with 1.2 million 20-foot equivalent units due to be delivered in 2011 and 1.33 million TEUs in 2012, Paris-based Alphaliner said.

This falls short of the average annual 1.37 million TEUs of deliveries in 2006-2008 but "the level of capacity additions remains a key concern for the industry," Alphaliner said.

A large part of the 1.2 million TEUs of new capacity added in 2010 was absorbed by increased cargo demand fueled by the rapid recovery of the global economy.

But cargo demand is expected to slow significantly to below 8 percent in 2011 from an estimated 13.6 percent in 2010.

The average growth rate of the world's five largest container ports, all in Asia, slowed to 8 percent in the final three months of 2010 from 18 percent through the first three quarters "with the trend towards slower growth likely to persist in 2011," Alphaliner forecast.

The slowing of demand in the fourth quarter of 2010 has already started to impact ocean carriers' load factors, with Alphaliner estimating vessel utilization rates on the Far East-U.S. and Far East-Europe routes dropping to 80 percent in December, the lowest level since May 2009.

The market's focus has now shifted to vessel utilization levels over the next two months as these will determine the direction of ocean freight rates after China's Lunar New Year celebrations.

Source: Journal of Commerce