[301211.EN.SEA] Mega Ship Glut Makes Asia-Europe Overcapacity Trap Inescapable

OVERCAPACITY on Asia-Europe trade lanes looks like an inescapable trap because of the glut of mega ships that are too big to go anywhere else, say analysts.

Containerships are losing money on Asia-Europe route after slashing rates more than 50 per cent this year because of a rate war and overcapacity with 42 of the world's biggest newbuildings joining the mega ship glut, reports Bloomberg.

Shipping lines have cut capacity on Asia-Europe routes to revive rates, with Hapag-Lloyd, Maersk and Mediterranean Shipping Co (MSC) announcing US$250 per TEU increases.

But these may not significantly boost rates, said Johnson Leung, head of regional transport for Jefferies Group in Hong Kong, because only 10 per cent of capacity has been cut against 15 per cent on the transpacific.

Alphaliner and Clarkson data show that next year's 13,000-TEU ships will nearly double that launched in 2011 and boost the mega fleet to 100 ships to be devoted to Asia Europe because they are too big for US ports, said the report.

MSC and its new partner, Marseilles-based CMA CGM, will add the most tonnage in 2012, with 21 new ships, increasing their combined fleet to 49. Asian lines will have 26 similar ships by 2013, leaving them reliant on smaller vessels ships to face the MSC-CMA group and Maersk, together representing half of the Asia-North Europe capacity.

"The alliance is going to put a lot of the Asian players at a huge disadvantage. There is no way they will be able to match it. Shipping lines have taken steps to reduce capacity, but it is not enough. They need to make drastic cuts or it's only going to get worse with all those new ships coming next year," said Um Kyung, Seoul-based analyst at Shinyoung Securities.

Said another Seoul-based analyst, Jee Heon Seok, at NH Investment & Securities: "It's getting tough for Asian lines on a trade that is dominated by the Europeans. There's not much choice at the moment other than reducing capacity to give them a better chance of raising rates."

Spot rates per TEU from Asia to Europe have dropped to US$490, the lowest since the Shanghai Shipping Exchange started tracking data, as a flood of new ships outpaces demand for Asian-made goods. The breakeven point on the route is at least $700, according to Morgan Stanley.

Maersk, the world's biggest container shipping line, has taken advantage of the twenty-three 13,000-TEU plus ships it operates to help set up a daily service on Asia-Europe routes, offering the industry's only guaranteed shipping times.

Maersk expects a loss in containers this year, but nonetheless will add twenty 18,000-TEU vessels in 2013. These ships, the world's biggest, will have an estimated 26 per cent per-box cost advantage over the largest vessels now used on Europe lanes.

Among Asian lines, only China Cosco and China Shipping operate ships with capacities bigger than 13,000 TEU. This reflects a greater focus on transpacific routes by carriers in the region.

More Asian lines are set to begin operating mega-ships next year. Hanjin, a partner of Cosco, will get five vessels bigger than 13,000 containers, according to Clarkson data. Cosco will double its fleet of that size to eight vessels. The two lines also work on Asia-Europe routes with United Arab Shipping, which will increase its mega ship tally to nine from one by the end of 2012.

Hyundai Merchant Marine Co will also add its first five mega-ships next year. Its partner Singapore's APL will get its first ship of that size in 2013 and is receiving ten 10,000-TEU vessels. The shipping lines' other partner MOL won't get its first mega ship until 2013 at the earliest.

Source : HKSG, 29.12.11.