Slow steaming and deferred deliveries to reduce impact of ULCVs
As the delivery rate for new ULCVs sets new records, shipping analyst Drewry asks in its latest report whether delivery delays or slow steaming can reduce their impact on liner operators.
Drewry has summed up the issue saying ‘The amount of ULCVs arriving over the next few years is an unwanted legacy from a period when carriers were over-confident in the market and possibly misguided in the benefits those ships offer. Nonetheless, we believe they will be able to mitigate the capacity inflation by delaying deliveries and slowing services’.
Last year, a total of 26 containerships of at least 18,000 teu were delivered to carriers, the most since these so-called Ultra Large Container Vessels (ULCVs) first hit the water in 2013 (see chart below). All of the aggregated capacity of 525,500teu that arrived in 2018 was deployed in the Asia-North Europe trade.
According to Drewry, the current orderbook schedule calls for a slightly less punishing deluge this year (460,000teu), followed by what would be another record haul in 2020 (620,000teu). 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.
Firstly, it is common that the annual delivery schedules are adjusted downwards in time. It is highly unlikely that all of the ULCVs scheduled for the next two years will arrive as originally planned with many being pushed into following years. Drewry provides its adjusted orderbook outlook that takes into account delivery slippage and other factors that impact the containership fleet in its Container Forecaster report.
Secondly, just because a new ship enters a trade it does not automatically follow that the net capacity of the route increases. Slow steaming gives lines the option to phase in a new vessel to a weekly service and maintain the existing capacity, assuming the new ship is of a similar size to those it is joining. The trade-off is longer transit times between ports.
This is precisely what 2M carriers Maersk Line and MSC are planning to do from March. As part of a network revamp, the two carriers will introduce six extra ships on to their 10 existing Asia-Europe (including Mediterranean) services. By adding more ships on to the same number of services (there will, however, be a net reduction of eight port calls in the network) the carriers said they will be able to improve schedule reliability by adding “extra operational buffer.”
The decision to slow ships down is probably also motivated by a desire to reduce ship fuel consumption in light of the anticipated higher bunker costs associated with IMO 2020, but nonetheless it will enable more ships to be entered into the trade without adversely hiking up capacity.
There will be some new capacity entering the Asia-North Europe trade in April in the form of a seventh loop from the Ocean Alliance carriers (CMA CGM, Cosco/OOCL and Evergreen). Between them, these carriers are responsible for 62% of this year’s unadjusted ULCV deliveries; the rest belonging to the 2M carriers (see chart above). As such, no amount of slow steaming could hide all of that new tonnage and a new standalone Ocean Alliance service was inevitable.