Container Ship Deliveries Down in H1 2019

Container ship deliveries in H1 2019 reached a historically low level, while the newbuilding market was equally subdued, said MPC Container Ships ASA.

Scrapping activity in the feeder segment remained at a comparable high level in Q2 2019 as in the previous quarter, the Norway-based shipping company said.

Various economic and political circumstances had a dampening effect on global container trade, compelling analysts to lower their full-year growth forecasts. However, estimates for global container trade growth for FY 2019 ranges between 3% and 3.5% while growth in active container fleet capacity (fleet development less scrubber retrofits) is estimated to grow only 1.9%.

Charter rates for container ships in the Post-Panamax segment began to rise in March this year. In the following months, this development filtered through into the smaller segments, recently affecting also the feeder market.

One determining factor for this development is the installation of exhaust gas cleaning systems (scrubbers) to meet the requirements set forth in the IMO 2020 regulation and the adhering need for replacement tonnage during retrofits.

As a result, the idle container fleet grew from a low of 1.3% (April 2019) to 2.5% (August 2019) of the total fleet.

Global seaborne box trade was estimated to grow by 2% in H1 2019, but headwinds from the global economy put pressure on certain trade routes.

Trade conflicts and other forms of geopolitical tensions, regionalisation and environmental concerns, as well as the combination of these factors have prompted analysts to lower their FY 2019 demand forecasts.

For FY 2019, Clarksons Research expects global container trade to grow by 3.1% (2018: 4.2%). Intra-regional trades are, however, expected to grow by 4.6% (2018: 5.7%). Even in the event of a "domino effect" from other trade lanes due to US-Sino tensions, Clarksons still predict 4.1% growth for FY 2019 (2018: 5.7%).

Feeder ships below 3,000 TEU provide the majority of capacity on intra-regional container services. 34% of all container ships and 53% of all feeder container ships are currently deployed on intra-regional trades. What is more, the share of intra-regional trade as a portion of global trade has increased from 33% in 2001 to 42% in 2018.

Other trade lanes carry growth estimates below the aggregate 3.1% estimate for FY 2019. Next to the decreasing effect that the US-China trade conflict has on trade volumes for Transpacific routes, a trade diversion leads to increasing trade flows within Asia, already visible e.g. in the increased export and import volumes to and from Vietnam.

“Active” container ship fleet capacity growth, accounting for vessels being temporarily decommissioned to undergo scrubber retrofits, is estimated at 1.9% for FY 2019, while the overall full-year fleet capacity growth is forecasted at 3.1% (2018: 5.6%). This represents a 30% decline year-on-year and hence the second-lowest fleet growth in history.

Total deliveries during H1 2019 stood at 76 units (0.51m TEU), with vessels larger than 12,000 TEU accounting for 0.39m TEU (76% of the total growth) while ships below 3,000 TEU accounting for remaining 0.07m TEU (14% of total growth).

H1 2019 container ship scrapping stood at 59 units totalling 120,000 TEU, on par with total boxship capacity recycled during all of FY 2018. Feeder container ships of less than 3,000 TEU accounted for more than half of the recycled capacity.

The introduction of low-sulfur fuel regulations in January 2020 may be perceived as creating a competitive advantage for larger vessels and modern eco tonnage. However, due to physical and logistical restrictions, regional trades continue to be dominated by feeder vessels which represent an appealing sub-segment of the overall fleet.

Estimates of a slow-down in feeder fleet growth to around 0.3% for 1,000 - 2,000 TEU vessels additionally supports the market perspective of the smaller segment.

The container ship newbuilding market was generally quiet during Q2 2019. Overall, newbuild contracting activity in the first six months of 2019 amounted to 54 vessels totaling 0.26m TEU capacity, a decrease of 60% compared to H1 2018 in TEU terms. At present, the newbuilding order-book amounts to approximately 11% of the fleet and hence is at its lowest level for years.