Container Vessel Values in Sharp Decline as Smaller Ships Become Obsolete

The world’s container ship fleet has been going through a period of development that has seen the launch of new vessels by carriers such as Maersk Lines with immense carrying capacity. While this will certainly have a positive impact on the efficiency and cost effectiveness of international freight handling, it is also having an influence on the shipping industry in other ways. Since April 2011 the value of post-panamax vessels, that is, ships that are too large to navigate the Panama Canal, has been declining. A large part of the reason for this loss in value has been the oversupply of containerized freight services in conjunction with uncertainty over the global economy. Between 2009 and 2011 the overall value of the world’s container fleet fell by 31% and these declines in value were again matched between April and November 2011 alone1. Currently, as the world’s economy begins to recover from the global financial crisis, the outlook for the freight transport industry appears bright. At the same time the container fleet is about to have several new ships added to it which will have a significant impact on the supply of freight services. As a consequence the decline in the supply of medium sized container ships has continued. In an already oversupplied market the addition of half a dozen huge E Class ships to the world’s sea lanes has put sustained downward pressure on the values of mid-sized container ships as they become marginalized by the cheaper and more efficient option that these huge ships are providing. The result of this decrease in value is that many of these post-panamax vessels are being taken out of service2. This has maintained strong prices in the containerized freight markets and, to some extent, it has had a preservative impact on the value of the post-panamax fleet with the decline in values slowing from around one third in 2009-11 to between 5-10% during 20123. These falling values have made many ships in the 8,000-10,000 teu range redundant as the cost of operating them and their slipping value as assets makes them uneconomical. This has seen many vessels that are less than ten years old being sent to the scrap yards. It isn’t all bad news though, and smaller ships that carry 750 teu or less are holding their value and seeing growth as they come into demand for the short haul feeder routes necessary to supply the larger carriers. References: 1. http://www.businessweek.com/news/2011-11-07/new-container-ships-fall-31-in-value-as-rents-economies-cool.html 2. http://theloadstar.co.uk/vessel-values-plunge-as-container-shipping-sails-into-heavy-seas/ 3. http://ilwu13.com/new-container-ships-fall-31-in-value-as-rents-economies-cool-3980.html 4. https://www.bimco.org/en/About/Press/BIMCO_in_the_Press/2012_08_17_The_Shipping_Tribune_on_Container.aspx