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[Hongde Information] capacity cuts lag behind market slowdown, shipping companies lose control of the market
Jan 11,2023
It is reported that Drewry, a shipping analyst, said in its newly released container market forecast that until a few months ago, it was quite confident that shipping companies would take necessary measures to reduce capacity before the market was completely out of control.
However, Drewri admitted that his prediction was wrong, "We think the shipping company will actively manage capacity, so we give them too much trust." The agency said in its report,A deep-seated instinct to maintain traffic has begun to work, causing shipping companies to lose control of the market..
At this unusual stage in the history of the container shipping industry, there is an expectation that the industry has undergone structural changes, and that integration and more efficient carrier alliances will help change old habits and hopefully help guide the market. And Drewri says that's also wrong,Old habits are hard to change.
Dreary said in the report that it is now clear that carriers have lost control of the container market and that they have failed to proactively manage capacity. And action on capacity will only be taken if severe losses force them to do so.
When the market began to show signs of weakness early in 2022, the deep-rooted instinct of shipping companies to actively drive down prices in order to ensure short-term bookings and maintain cargo volumes began to work without controlling capacity. In hindsight, that was the moment when shipping companies needed to act, and the failure to act on capacity at the time meant they were now powerless and completely exposed to external market forces.
That's not to say the shipping company has done anything, but, despite a series of service suspensions and a large number of blank sails, none has worked. in stock freight rates continue to fall on a weekly basis, rapidly approaching the five-year average for 2015-2019. Now,The container bubble has burstNew vessel orders in 2021-2022 are at an all-time high, with around 6.7 million TEUs ordered to date, and now it seems even more excessive than then.
The chart shows that,Profitability on Asia-West America and Asia-Northern Europe routes is rapidly declining, but because the two routes are still profitable, there is little incentive to cut capacity significantly further. However, if left unchecked, revenues on these routes will soon fall below costs. In contrast, the transatlantic route still has much more revenue than costs, so it has become a very profitable east-west route.
Druri describedThis is similar to the doomsday clock, which counts down before the shipping company makes a loss.. The closer the two lines are, the greater the need for capacity management. The fact that the two lines of the Asia-West America and Asia-North Europe routes are close to convergence will push shipping companies to take further action, but may remain on the verge of the need for some time, I .e. not to immediately rush to idle capacity or scrap old ships.
This is because shipping companies may want to wait and see if there will be a booking peak before the Lunar New Year. At the same time, transatlantic routes are still profitable, which provides opportunities for some ships rather than giving up profit potential by idling ships.
Given that loadings are falling at an alarming rate and freight rates are close to break-even, Druri said, he believes that shipping companies will eventually become busier during 2023 as they cut capacity.
Later in the report, Drewry expressed his view that we mistakenly believed that increased market concentration and newly acquired market power would prevent shipping companies from repeating the same mistakes. While demand for freight is shrinking faster than many expected, and some steps have been taken to address the excess capacity problem, these actions are still too little and too late. on the contrary,Shipping companies lose control of capacity and resume price competition to maintain volume.
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