[020219.EN.SEA] Asia-Europe Speed Slashed to Absorb Extra 2018 Box Capacity

THE world's leading container shipping alliances of 2M that unites Maersk Line and Mediterranean Shipping Co (MSC) and the Ocean Alliance are on equal footing in terms of their capacity share of the Asia-Europe trades.

Slow steaming, idling ships, blanking sailings and fitting exhaust scrubbers are among a plethora of measures Asia-Europe ocean liners are expected to deploy, reported IHS Media, which note that carriers have "little choice with the global low-sulphur mandate taking effect in less than a year and global economic indicators signalling slowing demand growth".

It continued: "Filling the ships amid signs of slowing demand is going to tax the operational creativity of the world's container carriers during 2019, especially those at the 2M and Ocean alliances that have the greatest share of capacity deployed on Asia-Europe.

"December and January are traditionally the two busiest months on the Asia-Europe trade as shippers get their spring cargo loaded but the volume growth has been declining since September."

It noted that volume data for November shows a year-on-year increase of just 2.2 per cent after rising 5.4 per cent in October and 6.6 per cent in September, in a bid to avoid higher US trade tariffs on Chinese imports. January through November volume grew by a weak 1.3 per cent to 14.5 million TEU, according to Container Trades Statistics (CTS).

IHS Markit predicts Europe's economic expansion will slow to 1.5 per cent in 2019 with adverse economic and political factors behind the continued deceleration, including the negative impact of trade tensions on manufacturing and exports, and the appreciation of the Euro against most major currencies, except the US dollar.

IHS Markit chief business economist Chris Williamson said "with expectations of output dropping to the lowest for over four years, companies are not anticipating any imminent revival in demand. Worries reflect multiple headwinds from trade wars, Brexit, heightened political uncertainty, financial market volatility and slower global economic growth."

Gloomy economic outlook aside, mega ships will steadily steam into service this year, with SeaIntelligence noting in its weekly Sunday Spotlight newsletter that the 2M Alliance will have an average weekly capacity deployed on Asia-Europe in Week 1-14 of 404,140 TEU per week, giving 2M an Asia-Europe capacity market share of 37.2 per cent.

Ocean Alliance will have 35.7 per cent of the market, and THE Alliance will have 24.9 per cent.

On top of that MSC is scheduled to take delivery of 11 ships of 22,000 to 23,000 TEU from August, while CMA CGM has nine 22,500 TEU vessels that will be delivered from December, and Hyundai Merchant Marine's 12 ships of 23,000 TEU will start arriving in 2020.

"The only thing that seems certain is that the alliances will be fighting for Asia-Europe market share in the coming years, as they struggle to take delivery of their mega ships currently on order, while trying to minimise the cascading impact on other trades," SeaIntelligence said.

Analysis from Drewry also highlighted that the record number of mega ships delivered to the Asia-Europe trade last year totalled 525,500 TEU.

Drewry said the current orderbook schedule suggested a slightly less punishing deluge of deliveries this year at 460,000 TEU but that would be immediately followed by another record amount of tonnage arriving in 2020 with capacity of 620,000 TEU hitting the water.

"While it is true that accommodating such large tranches of new capacity will be challenging, especially as the Asia-north Europe trade is in a slow-growth phase, there are reasons to believe that the task will not be as onerous as it initially appears," the analyst noted.

Drewry said that by adding more ships to the same number of services, the carriers believe they will be able to improve schedule reliability by adding "extra operational buffer."

Of the 18 weekly dedicated Asia-north Europe services operating in December 2018 there were eight loops running with ships smaller than mega ships, with only five services deploying 12 ships. That gave carriers the room to upsize or phase in more units to existing loops.

"The amount of ultra-large container vessels arriving over the next few years is an unwanted legacy from a period when carriers were overconfident in the market and possibly misguided in the benefits those ships offer," Drewry said.

"Nonetheless, we believe they will be able to mitigate the capacity inflation by delaying deliveries and slowing services."

That said, lowering fuel expenses ahead of the International Maritime Organization's (IMO) 0.5 per cent cap on sulphur in marine fuel from January 2020 is likely the chief reason for the return to slow steaming.

Source : HKSG.