How big will the oversupply of container ships be in the coming years? Are there any indications of a market recovery? How will scrapping and new contract cancellations affect the fleet development? How many vessels may end up in lay-up in the next few years?
Massive slowdown in the container market leaves the industry with very little hope for a better tomorrow. Shrinking transportation combined with numerous deliveries of a new tonnage plots a huge gap between supply and demand. Freight rates collapsed, spreading unrest across the market.
DNV Market Research. Our model aims to calculate different patterns of the future container fleet development, taking into account the following aspects:
Cancellations of new contracts
Scrapping
Delays in delivering new tonnage
Lay-ups
Slow-steaming
Cancellations of the newbuilding contracts are based upon a separate model which assumes that 278 container vessels (1.6 million TEU) will be removed from the existing orderbook. This represents a reduction of scheduled deliveries by 23% and (27%) respectively.
Scrapping volumes for the period 2009–2013 have been assumed on average at 70 vessels (100.000 TEU) per annum. Bearing in mind that the container fleet is very young, there are no big vessels which are suitable for scrapping, hence the removal of the older tonnage will not change the supply/demand balance substantially.
Furthermore, we have assumed that as many as 150 ships (0.63 million TEU) scheduled for delivery in 2009-2010 may be delayed and be delivered in the 2011–2013 period (represented in the chart by the yellow area).
As the market conditions deteriorate, it is difficult to make reasonable assumptions of what will be the future demand for container transportation. Therefore, our demand side (which is represented by the turquoise colour) is strictly theoretical. We believe that it somewhat reflects the current sentiment in the market place, although it is up to the reader to predict where the demand transportation should be placed. Our model takes into account two separate demand developments (one for number of vessels and the other for TEU).
Our calculations show that as many as 686 container ships (3.6 million TEU) may be laid-up by the end of 2011. As we move on towards 2013, providing the market has strongly recovered, the number of laid-up vessels decreases to 97 (1 million TEU). It is worth mentioning, that when two models (based upon number and TEU) are compared, we can easily notice that the average size of laid-up ships increases as we move towards the future. In 2009, the average size of a laid-up vessel is around 4,500 TEU, whereas by 2013 it may even increase up to 10,000 TEU. It is, however, important to note, that fewer vessels may ultimately be laid-up if slow-steaming is introduced.
Lack of finance may also influence the number of cancellations. In Lloyds List of 30 March, Gerry Wang of Seaspan Corp. made the point that 50% of fleet on order lacks adequate financing, and hence may never be built.
So there you have it. A sharp decline in trade coincides with a period of an intense surge of new tonnage being delivered to the market. On average in the 2009–2011 period, the container capable fleet is estimated to grow on average by 12.5%, adding 5.41 million TEU to the existing fleet. Scrapping may only have a limited effect in reducing the overall fleet development.
As we already mentioned our demand curves are only hypothetical, so the result of calculations is only speculative. Please note, however, the dotted areas on our charts. They reflect the current picture of cancellations as well as vessels in idle positions (source: Alphaliner, DNV). As you may notice, so far the market is developing along with our assumptions. We leave the discussion open…