According to Clarksons, prior to the last 7 years, container trade growth had been rapid, averaging 9.6% per annum in 1996 to 2007, an astonishing performance given the average 4.1% per annum expansion in global seaborne trade in the same period. Box trade flourished, as further cargoes were containerised and manufacturing was rapidly outsourced from the west to Asia (particularly in the 2000s). Container shipping became the planet’s chosen low cost way for moving general cargo around. The first major blip in the story was in 2009, when box trade fell for the first time in the history of containerisation, dropping 10% on the back of the global economic downturn. 2015 was the worst year since then, with trade growth only reaching 2.5%. The global containership fleet made idle this year is set to reach a new record, surpassing the 1.5 million TEU mark set in December 2009, according to Maritime Strategies International.
This turn down in trade is due to many factors, not least of which is the slowdown of the Chinese economy after many years of growth. This level of growth could not permanently be sustained but the timing has upset the shipping industry with so many container ships on order, many of which are very large vessels with capacities of over 15,000 TEU.
The China to Europe services have been the mainstay of the container industry in recent years so the decline in demand has had a severe effect on the industry.
The result of this means that there is now over capacity on these routes which results in two things. Firstly, freight rates will drop as the various alliances in the container industry compete with each other for the limited business available. This alone is bound to put pressure on the profit and loss accounts of these companies.
Also, it will mean that there will be vessels taken out of service, particularly as the previously ordered newbuilds come along. Some of these vessels will be laid up awaiting and hoping for an upturn in trade. Others will be destined for the beaches of Gujarat. a long-term solution can only be provided by a reduction in capacity on the water, according to Maritime Strategies international’s Senior analyst James Frew who said:-
“Despite the seemingly endless gloom that surrounds the container industry, MSI believes a limited upturn is possible in 2016 as further sailings are removed and idle capacity increases. However, our forecasts are certainly modest and given the degree of oversupply, no meaningful increase in rates will be achieved until more capacity is removed or trade growth picks up.”
What happens in the future remains to be seen but what is certain is that we will see a repeat of 2009 when container ships were laid up in some unusual places such as some Scottish Lochs, and some not too old vessels will be recycled while they are still in good condition. This is a shame. I hate to see any ship that is still serviceable end up on the beaches of Alang, but this is an inevitability as a result of the optimistic orders placed in the past few years.