Carriers are intensifying their capacity-withdrawal activity, with November seeing a big rise in the number of idle containerships, says Drewry Maritime Research.
The size of the idle fleet swelled by 52% from October to November to reach 900,000 teu, the largest monthly total since early 2010 following the market crash of 2009.
Idle tonnage now accounts for 4.6% of the world’s fleet, which is still some way off the peak of around 11% seen at the end of 2009.
For clarification, Drewry classifies a ship as idle when it has been stationary for a minimum of 14 days. So-called missed voyages do not count because these vessels continue to sail without calling at ports so that they can be easily fitted back into the schedule.
The latest monthly surge was driven by more of the bigger class of ships being laid up. Drewry counted a total of 31 inactive ships of 8,000 teu or above as of 16 November, including one 18,000 teu leviathan.
The idling of such big assets is not done lightly, but the growing size of this sector shows that carriers have understood that slow steaming and missed sailings are insufficient on their own to address the problem of overcapacity in the East-West trades.
The reasons behind the latest upsizing to the idle fleet are common knowledge – sluggish demand, overcapacity and ultra-low freight rates. What’s harder to judge is how many more ships will need to be parked up in order to turn things around.
As mentioned previously, the idle fleet peaked in 2009 when as much as 1.4 million teu worth of ship capacity, then representing 11% of the world fleet, was laid up. However, while the present situation does share similarities with 2009 there are more fundamental differences.
The large-scale idling seen in 2009 was a response to a collapse in demand caused by the global financial crisis, whereas today’s problems are more self-induced.
Container traffic is currently at least still growing, albeit anaemically, but the real problem today is the huge additions to the containership fleet that have seen supply outstrip demand in each of the last four years.
Back in 2009 carriers were too slow to react to the downturn and didn’t go deep enough with their capacity cuts to prevent the industry from registering annual operating losses in the region of $17-18 billion.
But they were canny enough to gently ease the supply of vessels back into operation when demand unexpectedly returned with a vengeance the next year, leading to record industry profits of around $20 billion.
Carriers’ problems today stem more from the supply-side rather than demand. With more big ships being ordered, Drewry is currently forecasting that the industry will have to endure at least three years of overcapacity and, with demand expected to rise only modestly over this period, carriers will have to stick with idling for longer in order to balance things up.
The next question to ask is how deep will the idling cuts will go? Freight rates are currently very nearly as low as they were in the nadir of 2009, which might suggest that lines would be wise to take a similar chunk of capacity out the system, if not more considering that the amount that was removed proved insufficient to stem the flow of red ink.
To get the idle fleet back up to 11% of the total fleet would require the idling of at least another 1 million teu on top of the 900,000 teu currently anchored.
That is probably excessive. The imperative to cut capacity was greater in 2009 as carriers were haemorrhaging cash so quickly that many were close to bankruptcy, whereas now most have been able to turn a profit even up to the third quarter, although that is likely to change when the fourth-quarter results come in.