Capacity Cuts and Trade War Increase Idle Container Tonnage

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Increasing number of container tonnage has been lying idle due to the combination of capacity cuts by the carriers and looming threat to hike tariffs on Chinese goods by US president Donald Trump.

Container trade at risk

A report released by the shipping association BIMCO issued a warning that over a quarter of container trade on the transpacific could be at risk from the escalating US-China tit-for-tat trade war.

The report was based on a survey conducted on September 3 which highlighted that a record 143 vessels were idle for 408,283 teu representing 1.8% of the total global cellular fleet.

Idle numbers expected to rise

The report said, “Idled numbers are expected to rise in the coming weeks due to service cancellations for the winter slack season. The service cuts announced so far were significantly more severe than those in 2017”.

Maersk cancels services

Moreover, the 2M alliance partners, Maersk Line and MSC, are temporarily suspending their AE2/Swan Asia-North Europe loop, with the last sailing from China on 22 September. The 11 vessels deployed on the loop – eight by MSC and three by Maersk – have an average capacity of 19,250 teu and will need to find alternative employment for the indefinite suspension.

Maersk told customers it would blank the AE2 service one week prior to the already announced cancellations.

Capacity decreased

Many of the ULCVs deployed on other Asia to Europe strings, are replacing to a smaller tonnage, which will face a period of lay-up. These surplus large ships and the impact of the delivery of more new build ULCV’s appears to be the primary source for the expected big spike in idled capacity.

In general, with the exception of the very smallest box tonnage, under 1,000 teu, where demand is weak due to economies of scale, the charter market in the smaller sectors remains robust. And panamax container vessels are still much in demand.

Unhappy over charter rates

The Charter rates for VLCS and LCS [large container ships] units are particularly unimpressive, being in some cases, hardly any higher than what substantially smaller classic panamaxes can currently obtain.

The future of the charter market looks bleak and despite of sustained cargo volumes on many routes, the overall operating environment remains challenging for carriers.

The company reported that the operating losses suffered by many carrier resulted in service restructurings which in turn affect the demand for tonnage for vessels of certain sizes. Nonetheless, with hurricanes and typhoons disrupting carriers’ schedules, the container ship owners need to charter extra tonnage to fill the gaps left by delayed vessels.

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Source: The Load Star

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