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Alliances, scrapping, and Hanjin bankruptcy fail to cure boxship oversupply

Alliances, scrapping, and Hanjin bankruptcy fail to cure boxship oversupply
The tonnage oversupply problem will continue to shadow the global container shipping market over the next couple of years despite international carriers’ efforts at realigning alliances to optimise tonnage, increased scrapping and a major carrier bankruptcy.

The biggest short term pressure on the market is an “extreme mismatch” between capacity and utilisation that will see no major improvement to the supply-demand equation in 2017 and 2018, according to Henriette Brent-Petersen, managing director shipping and offshore ressearch, DVB Bank.

Brent-Petersen told delegates at the Capital Link International Shipping Forum China held in Shanghai on Friday that even with the start of the new container alliances this month, their efforts on vessel sharing and boosting utilisation are not supported by fundamentals.

“The container fleet growth has outpaced demand every year since 2011, with the trend only recently reversed with demand outpacing supply during the last quarter of 2016 and the first quarter of 2017,” she said.

The slow down in supply growth was aided by record scrapping activity in 2016 and delays in scheduled deliveries to 35% of newbuilt tonnage. Brent-Petersen, however, believed that these factors are not sufficient to remove the downward pressures on the market.

She cited that the global GDP multiplier factor for container shipping transportation growth is down to 1.2 times compared to 2.5 times before the 2008 global financial crisis.

“Container shipping now has a decreased dependence on GDP growth and we will be looking at the 1.2 times multiplier for the next couple of years, which is obviously negative for container shipping,” she said.

Global boxship fleet growth will be at 3-4% in 2017 with immediate downward pressures on freight rates happening in the next three to six months, Brent-Petersen said.

Another factor contributing to the lingering supply glut is the shorter two-year completion for newbuildings in general due to excessive shipbuilding capacity and the yards’ hunger for orders. “Any contract placed today will limit any rebound in the near term as the new ships will be completed in two years, compared to five years the last time,” Brent-Petersen said.

Zhang Ye, president of Shanghai Shipping Exchange, pointed out that there is “no way” that shipping can eliminate the overcapacity in a big way without taking the fatal pill of bankruptcies.

“It is sad to say but what we would like to see is more bankruptcies such as Hanjin Shipping. In fact we are fortunate that we are not seeing more bankruptcies among the world’s leading carriers,” Zhang commented.

In summing up the state of the market, Drewry’s group managing director Arjun Batra said that the “mega trend” is lower demand for shipping being the new normal, with shipping predominantly being oversupplied and seen as a less attractive investment option.