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The capacity crunch in the ocean freight industry during the three years of the pandemic compounded the existing uncertainties and eventually resulted in a perfect storm for shipbuilding markets. All the players in the container shipping sector started ordering more container ships than ever before. As per an estimate by Maritime Strategies International (MSI), with the influx of new container ships, the total deliveries in the second quarter of 2023 will reach 717,000 TEUs.
In the 3rd quarter of 2023, the deliveries will rise to 764,000 TEUs. Even now as the spot rates continue to drop the carriers are still placing orders for new ships. In this context, we need to keep in mind that consumers all around the world are spending less because of the looming recession and presently we can see a stagnating demand for commodities. Therefore, the industry could have difficulty absorbing the flurry of new ships.
The top carriers in the ocean freight industry are ordering the most ships
When it comes to increasing capacity, ocean carriers are competing with each other to acquire larger and more efficient vessels. According to Alphaliner, 89 new mainline ships are set for delivery within the coming months of 2023. In 2024, there will be a further delivery of 130 ships which will be followed by another 96 ships in 2023. In total, around 315 vessels for mainline and non-mainline trades will be delivered in the next three years. MSC which is presently the largest ocean carrier will be acquiring the largest number of mainline vessels within the next two years. Moreover, it will increase its fleet capacity by 33 in the coming months. CMA CGM ranks just next to MSC in terms of the number of orders of mainline vessels.
It is noteworthy how the new vessels ordered by the carriers are green fuel compatible. Maersk has ordered six 17,000 TEU new builds that can run both on fossil fuel as well as green methanol. With these new orders, they will eventually have nineteen 17,000 TEU vessels that can run on green fuel. MSC has ordered 12 16,000 TEU vessels that can run on LNG. Maersk is acquiring an additional fleet of 2,500 TEU ships that burn methanol instead of conventional fuel. COSCO is also ordering 6 methanol-powered 23,000 TEU ships along with nine 15,000 TEU ships that run on conventional fuel.
The problem of over capacity
The carriers in the ocean freight industry will face a challenging time ahead because of the deluge of new vessels. Many experts are of opinion that the capacity on order will far surpass the global demand. Since the supply of space will exceed the demand for a considerable period, a number of carriers will surely go for market share which in turn could lead to declining rates and take a toll on the profitability of the carriers. The net orders for new vessels will result in a 30% increase in capacity. The carriers could also moderate capacity by blank sailings in the coming months. As a result, this year is going to be a profitable one for freight forwarding companies which will continue to benefit from low freight rates and attract more volume.
One way to offset the problem of excess tonnage is for the carriers to scrap the old ships. It is important to mention here that in the last two years, almost no container vessels were scrapped since the freight rates were soaring. Therefore, the carriers should ideally scrap the old polluting vessels from the market as soon as possible. Drewry has predicted ship demolitions to reach a record level in 2023. Nevertheless, even the scrapping of ships is unlikely to offset the imbalance in supply and demand. In fact the carriers might need to demolish a few of the comparatively young ships as well to cope with the problem of overcapacity.
Lastly, the influx of new ships could make slow steaming a new trend in the ocean freight industry. In the future, the carriers could restrict the sailing speed of the vessels. This in turn will help to reduce both emission and fuel expenses while eliminating quick supply. Slow steaming will not just be beneficial for the environment but will also help to lower international fleet capacity by 5% to 15%.
The new ships will enhance the industry’s environmental sustainability
With IMO 2023 coming into effect, the ocean freight industry will be facing increased regulations and come under frequent scrutiny. The use of less polluting fuels that are cleaner and more expensive is one important measure that is helping the sustainability endeavours of this industry. All the major players in the shipping sector agree that the best way to move forward in the path of sustainability is to reduce the dependence on traditional heavy fuel oil and switch to greener options. The new container ships are not only much more fuel efficient than their old counterparts, but many of these ships can also run on green fuels. They come with dual-fuel capabilities that make them future-proof against any environmental regulations in the coming years.
Source: globalialogisticsnetwork.com