- Excess tonnage from COVID-era orders will lead to a demand-supply imbalance in shipping.
- Large-scale return to the Suez Canal or Red Sea will impact freight rates and competition among carriers.
- Demolition of older vessels may help, but will not be enough to resolve the overcapacity issue.
Excess tonnage will lead to a shift in market dynamics, especially as ships built during the pandemic begin operations, reports the Loadstar.
Pressure on Commercial Teams for Profitability
“If you are one of those big liner operators, then clearly the problem, and the pressure on the commercial teams, will be significantly bigger… finding cargo is not the problem, but finding profitable cargo is obviously always a challenge for everyone.”
Larger shipping operators will face increased challenges in securing profitable cargo amid growing capacity.
Middle East Shipping Stakeholders Respond to the Crisis
Listen to this clip of Hans-Henrik Nielsen discussing how Middle East shipping stakeholders are coping with the Red Sea crisis.
Middle East shipping stakeholders are actively responding to the changing conditions caused by the crisis in the Red Sea.
Freight Rates Expected to Ease in 2025
“Indeed, Xeneta predicts additional available tonnage will continue to ease freight rates in 2025.”
More available shipping capacity is predicted to drive down freight rates by 2025, benefiting carriers with larger fleets.
Large Tonnage Carriers Have Upper Hand
While the market remains tight, carriers with the largest tonnage will have the upper hand, but any easing in capacity – especially through a large-scale return of ships to the Red Sea – would transform the situation dramatically and put pressure back on carriers to maintain market share through aggressive pricing.
Carriers with large tonnage will dominate the market, though a return to the Red Sea could lead to competitive pricing.
Demolition as a Strategy to Rebalance Fleets
According to Xeneta, if carriers turn to demolition to re-balance fleets – assuming a return to the pre-pandemic average and that three-quarters of the ships older than 22 years will be sent for demolition – this will result in 1.8m teu leaving the global fleet.
Demolishing older vessels is a potential way to reduce overcapacity, with an estimated 1.8 million teu expected to leave the global fleet.
Overcapacity Continues Despite Demolition Efforts
But it cautioned: ‘Even this high level of demolition would not be enough to turn carrier fortunes around in the case of a return to the Red Sea and the inevitable overcapacity in the market, given the many millions of teu delivered over the past four years.’”
Despite high levels of demolition, overcapacity in the market will likely persist due to the influx of new ships over recent years.
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Source: The Loadstar
