BIMCO: Changes ahead as container ship orders hit record high

The current slowdown in global container markets has done little to curb shippers’ appetite for new capacity. BIMCO writes in its latest market report that record container backlog signals the start of significant changes for the industry. The trade group’s analysis points not only to the expected increase in global capacity, but also to changes in the industry’s ownership profile and increasing adoption of alternative fuels.

There have been numerous reports on the short term challenges facing the container industry based on slowing demand, declining volumes and a sudden sharp drop in freight rates. S&P Global predicts further difficulties for the sector in 2023 with overcapacity but also with adjustment to the end of the 2M alliance and emerging environmental regulations in a new Commodity Insights report. Nonetheless, last week CMA CGM signed the largest ever container ship order, valued at more than $3 billion, from China’s shipbuilding industry. Deliveries of new vessels are planned through 2026 and beyond.

“In the last ten quarters, 8.61 million TEU were contracted, which corresponds to the contract level of the previous 30 quarters,” writes BIMCO analyst Niels Rasmussen in the new market analysis. “The order book has now risen for ten quarters in a row, has reached a new record high in each of the last four quarters and, at 7.54 million TEU, now corresponds to 28.9 percent of the existing fleet.”

The trade group highlights that the large order book will lead to significant fleet growth, a view shared by many industry analysts. BIMCO expects planned deliveries for the remainder of 2023 and 2024 to add just over 5 million TEUs to the industry’s capacity. In its Global 100 ranking, Alphaliner puts the current total size of the industry at just over 6,500 ships with a capacity of almost 27 million TEU.

One of the key questions is how much of the tonnage will be used to replace aging ships and to accommodate new environmental regulations versus additions. MSC and OOCL, for example, have both just embarked on the industry’s next phase of growth with the launch of new ultra-large vessels that surpass the 24,000 TEU capacity hurdle, but MSC is bringing vessels onto existing routes and positioning older, smaller vessels for new operations.

S&P Global cites data from Sea-Web in its new report that says only five container ships were scrapped in all of 2022. Data shows the pace is accelerating with 12 ships sold for scrap so far in 2023, but for the most part it’s smaller and older ships that will have less of an impact on the industry’s overall capacity. S&P Global calculates that currently only about 12 percent of the world’s fleet has reached the scrapping age.

“We estimate that recycling will reach almost 1 million TEU,” says BIMCO’s Rasmussen. With 5 million TEU due, they forecast that the capacity of the container ship fleet could exceed 30 million TEU for the first time by the end of 2024. BIMCO notes that this would represent a 16 percent increase from today.

This wave of new deliveries, writes BIMCO, will also increase the use of new and alternative fuel types. They note that only 10 percent of the sector is currently using alternative fuels, but with the first methanol ships due to be delivered this year and next and the emergence of ammonia-capable designs, BIMCO says 57 percent of new container ships are a some level of alternatives will include fuel preparation.

Rasmussen anticipates that five different fuel types – low- and high-sulphur fuel oil, LNG, methanol and ammonia – will appear in the sector when the new ships enter service. He stresses, “As alternative fuel use increases, it is becoming increasingly difficult to establish a single relevant rate benchmark for the time charter and asset markets.”

However, BIMCO also notes that the time charter market is declining but predicts that it will become more difficult for operators to use charters to quickly adjust fleet capacity. The driver of this development is an increase in the proportion of owners. During the booming market, charter rates skyrocketed and many of the largest shipping companies snapped up available vessels, leading to strong sales in the used market.

A decade ago, BIMCO noted that operator ownership of fleet capacity bottomed out at 50 percent, but has since risen to 61 percent. “This share will continue to increase in the coming years as 65 percent of the order book capacity is controlled by operators,” notes BIMCO. They point out that many of the largest ships owned by non-operating owners are also tied to long-term charter contracts, meaning that increasingly only smaller ships are available in the short-term charter market.

Another key factor driving owners and operators to build new homes is the need to comply with new environmental regulations. BIMCO notes that the new vessels will be more fuel efficient than most existing vessels and with the introduction of alternative fuels will help reduce their greenhouse gas emissions from the sector, which will help the entire maritime sector meet targets set by the IMO and others to start reducing harmful emissions.

Source: News Network