2017 is the Year of the Shipping Carrier

the year of the carrier

A new year has just begun in the shipping industry and maritime hopefuls predict that it’s going to be the year of the carrier.

Since ocean freight levels reached historic lows last year due to overcapacity in the industry , especially in the Asia – Europe trade carries are starting to think twice about their strategies. in that respect “The big blue” has announced that 8 panamax vessels are going to be scrapped in 2017. Estimated transfer dates of the vessels to the ship recycling yards are between mid-December 2016 and mid-March 2017.

The reasons behind this decision are multiple. For one Maersk wants to capitalize on the Hamburg Süd acquisition which brings on board 130 container ships with a capacity of 625,000 TEU. Further more all terminals are not ready to birth panamax vessels since the draft needed for such a task is 50 feet or more. Thirdly , the head office in Copenhagen has decided that the majority of the Maersk fleet should consist of more flexible vessels up to 6000 TEU to be able to reach all markets needs.

The 8 panamax vessels represent a small 1% of the capacity of the carrier and even though the number seams small it is very meaningfull for those that understand where the industry is going. All carriers want to increase their ocean freight levels but in order to do so successfully space needs to be tight. Applying GRIs can be challenging when the pressure for filling the vessels hits and you need to cover your operating costs.

And even thought we expect more carriers to follow the example of the leader in the industry and start scrapping big capacity vessels, we should also take a look on the carriers that want to invest in panamax vessels in order to better understand were the industry is going. Are they independent carriers or are they part of an alliance?

According to shipyards in India and China ordering activity so far in 2016 has seen commitments for just 21 new ships from four steam ship lines . These were Islamic Republic of Iran Shipping Lines (IRISL) with six vessels, Nippon Yusen Kaisha (NYK Line) with five, Pacific International Lines (PIL) with four and Shoei Kisen Kaisha with six ships on order. These will eventually add 306,650 teu to the global fleet.

On a CNBC interview on 1/18/17 for the World Economic Forum 2017 the CEO of Maersk Group Søren Skou mentioned the following:

CNBC: Did your company, and other companies, just get this very badly wrong in investing in the most extraordinarily large, ultra-large container ships, the very large container ships, and just got it wrong, at the wrong time in the cycle, invested in too big a ships, when actually the previous fleets would have been just about fine.

SS: So clearly, we, and others, were surprised by the fact that global trade has not grown nearly as much as one would have expected five years ago. Before the financial crisis, global trade, in volume terms, was growing 8%, 9%, 10% per year. Now we’re down to something very close to global GDP around 2% probably in 2016. We expect 2.5, maybe 3% this year. So of course it’s a lot lower level of growth, that means that we have overcapacity, have invested in too much capacity as an industry, we are working our way through that as we speak, and we have seen virtually no new capacity being ordered in the last year.

So please stay tuned as it yet to be seen if 2017 is going to be “the year of the carriers” but it certainly is not going to be boring. This year’s scrap book has just written its first pages and it is yet to be seen whether its going to be a big publication or not…