Container Ship Fleets Continue to Expand in Spite of Oversupply Warnings

The world’s fleet of container ships has expanded quickly in the past few years, and now the supply of shipping outstrips the amount of cargo that is destined for the seaways. A large part of the reason for this is the over-estimation of the potential growth in demand for global container shipping that was widely predicted prior to the 2008 Global Financial Crisis (GFC.) Another contributing factor has been the move by many sea freight lines to move to larger ships with a massive capacity. Since the GFC, the capacity of the average container ship has increased by 27%. At the same time, a shrinking global economy saw a decline in demand, and the lower cost per ton that is on offer from these bigger ships has squeezed many of the smaller ships off the sea lanes, and concentrated the transport of containerized cargo into fewer hands. The dominance of the biggest companies in the industry looks set to continue as three of the largest lines in the world, Maersk, CMA CGM and Mediterranean, have formed a coalition to work together to reduce costs and integrate their services more efficiently. In the challenging fiscal climate of the current global economic environment, these changes are a move to control shipping rates across the world, which really boils down to reducing prices as much as possible. The Korean giant, Daewoo Shipbuilding & Maritime Engineering (DSME,) recently announced that it has signed a $417 million contract to build three of the enormous Triple E Class container ships for an Asian shipper. This is rumored to be Hong Kong Asset Management, who is thought to have consigned the ships with plans to lease them to Mediterranean to increase the capacity of their cargo fleet. Meanwhile Maersk has begun taking delivery of the first of twenty of these behemoths, and there are yet more on order from Hyundai Heavy Industries (HHI) for China and the United Arab Shipping Company. The combined capacity of these new Triple E Class ships will be enormous, and place downward pressure on shipping rates. It is estimated that these super container ships reduce the cost of shipping by as much as 20% per standard unit. This sharp decline in rates is sure to see many smaller operators, who are already on a slim margin in the flat global economy and oversupplied market, winding up operations as they can no longer remain competitive with the big boys.