Container Shipping Market Seen Entering 2027 Overcapacity Similar to 2016 Price War

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Mfame Editor
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9

  • Demand outlook tied to global GDP growth.
  • Red Sea crisis resolution by 2026 is critical for balance.
  • Scraping is expected to remove 13% of the fleet from 2026.

In issue 734 of the Sea-Intelligence Sunday Spotlight, a thorough examination was carried out on the long-term balance of supply and demand in the container shipping industry. The analysis suggests that the market is on a path toward cyclical overcapacity, which is expected to peak in 2027, reaching levels reminiscent of the 2016 container shipping price wars, reports Sea Intelligence.

Methodology Behind the Projection

To arrive at this projection, a baseline comparison was made between nominal vessel supply and anticipated container demand growth. This was then fine-tuned by considering four key real-world operational factors:

  1. The long-term structural slowdown of vessels
  2. The effects of port congestion
  3. Capacity absorption due to the Red Sea crisis
  4. Predictions for significant vessel scrapping

On the demand side, the outlook was modelled based on global GDP growth.

Market Shift Towards Overcapacity

The adjusted model (Figure 1) clearly indicates a shift in the global container market:

  1. Moving from recent capacity deficits
  2. Toward a notable overcapacity by 2027

This overcapacity is expected to resemble the levels seen in 2016, during one of the most intense price wars among carriers. However, it’s worth noting that the situation is not anticipated to be as dire as the overcapacity experienced during the 2009 financial crisis.

Key Assumptions in the Forecast

  1. Resolution of the Red Sea Crisis: The model assumes that the Red Sea crisis will be resolved by mid-2026, allowing a significant amount of capacity to re-enter the market.
  2. Vessel Scrapping: A notable increase in vessel scrapping is expected starting in 2026, with projections that 13% of the global fleet (currently 20 years or older) will be phased out.

Uncertainties and Risks

While this projection offers a structured outlook, it is still subject to various uncertainties:

  1. Prolonged Red Sea Crisis: A longer disruption could continue to absorb capacity, alleviating oversupply pressures.
  2. Trade War Impact: The ongoing US trade war presents a downside risk to global demand.
  3. New Vessel Orders: Additional newbuilding orders could further worsen the impending overcapacity.

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Source: Sea Intelligence