Red Sea Crisis Alleviate Containership Overcapacity Woes

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Capacity soaked up by diversions will ‘barely move the needle’ on supply and demand. As carriers reschedule, supply lines will normalise, putting pressure on freight rates again, says an article published on llyodlist website.

Summary

  • The ongoing Red Sea crisis and diversions around the Cape of Good Hope are not expected to significantly alleviate the oversupply of containerships.
  • The effective capacity will be affected by longer voyage times, but the overall impact will be minimal compared to the pandemic.
  • Drewry initially expected effective capacity to increase by 9% this year, but the impact of diversions has led to a revised estimate of close to 5%.
  • The oversupply situation in the container shipping industry provides resilience to cope with disruptions caused by the Red Sea crisis.
  • Spare capacity in the idle fleet, newbuildings, and oversupplied trades contributes to the industry’s ability to manage the current challenges.
  • While rates on affected trades may stay elevated during the crisis, they are expected to not reach levels that could stoke inflation.

Impact On Effective Capacity

The ongoing Red Sea crisis and diversions around the Cape of Good Hope are not expected to have a significant impact on alleviating the oversupply of containerships. According to Drewry’s container research manager, Simon Heaney, the effective capacity will be affected by longer voyage times, but the overall impact will be minimal compared to the pandemic. The diversions mean not all ships will carry as much cargo throughout the year due to extended transit times.

Limited Impact On Supply And Demand Dynamics

While Drewry initially expected effective capacity to increase by 9% this year, the impact of diversions has led to a revised estimate of close to 5%. Despite the adjustment, the overall impact on the supply and demand dynamics in the container shipping industry is minimal. The diversion of vessels through longer routes only marginally affects the supply/demand index, remaining far below the balanced market threshold.

Global Oversupply In Container Shipping

The oversupply situation in the container shipping industry provides resilience to cope with disruptions caused by the Red Sea crisis. Although capacity constraints may be felt on services directly related to the Suez routing, the global oversupply following the pandemic ordering rush allows for ample room to absorb such disruptions. Spare capacity in the idle fleet, newbuildings, and oversupplied trades contributes to the industry’s ability to manage the current challenges.

Long-Term Planning And Reshuffling

While rates on affected trades may stay elevated during the crisis, it is expected that they won’t reach levels that could stoke inflation. The initial phase of challenges due to diversions is anticipated to ease as carriers incorporate Red Sea diversions into their longer-term planning. Drewry emphasizes that despite the initial pinch, the overall trend remains towards overcapacity, leading to a decline in freight rates from the third quarter onwards.

Temporary Pinch And Softening Spot Rates

The Red Sea shipping crisis is considered a temporary pinch, impacting the positioning of ships and containers. While there have been significant increases in spot rates, they are already showing signs of softening after a recent bounce.

The overall trend remains downward, and Drewry expects rates on east-west trades to decline by 10% in 2024 compared to 2023. The Red Sea crisis alone is insufficient to reverse the market trend, with sufficient capacity expected to meet demand post-March or April.

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Source: llyodslist

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