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Overcapacity is the biggest concern for container shipping and ports

Overcapacity is the biggest concern for container shipping and ports
Overcapacity is the biggest concern facing the container shipping and ports industry according to Mohammed Al Muallem, svp and md for DP World UAE Region.

“The main concern today is capacity. There is huge overcapacity within the shipping lines. In 2015, it is expected that growth in capacity will be 9.1%. It is estimated that [in] 2016, it will be 5.5%,” he said at TOC Middle East.

Al Muallem said global ports were under pressure, with port handling growth expected to decline to 2.2% this year from 5.3% in 2014, before rising slightly to 3.3% in 2016.

He said the dramatic increase in 10,000-plus teu capacity vessels being delivered to market, which would see units double from 265 ships today to 529 by 2018, made shipping-line profitability difficult. “It is a huge challenge for both sides, the liners, and also the ports,” he said.

Load factors on these ships had declined. “Competition becomes really stiff between the liners in order to fill up their ships. Everybody is trying to catch up with the cargo.”

Alliances continued to drive down cost per teu. “They are trying to get together to utilise the assets, capacity, and the freight rate. There has been a 52% decline in rates compared to November 2014. It’s a big drop. It will have a serious effect on the business. Nobody is immune. It’s our problem too.”

While he said the effect of mergers remained to be seen, low bunker costs were one of few plusses. “The advantages of first two quarters of 2015 have been wiped out. It’s a very difficult time. Demand is getting weaker. In our region, the oil price is the one big economic development, alongside weak global commodity prices, and pressure on currencies in emerging markets,” he said.           

“We had great hopes that Africa or South America would be the next emerging markets [to perform] and help the world economy to move out of problems. This hasn’t happened. The dollar is very strong, making their currencies weaker, and imports difficult.”

Another impact has been the slowdown in China, where double-digit growth has fallen to around 7%, a sizeable drop even though rates in Europe, the US and emerging markets are a lot lower. “The Chinese are trying very hard to manage the business to limit the capacity,” he said.

Al Muallem said alliances were moving ships out of service, and cancelling some trades, citing Alphaliner data showing that 1m teu of idle capacity existed in the line. “That’s the size of a terminal. We all are connected and this will have a big effect on all of us.”