In a reflection of what has happened on the water, container equipment manufacturers are facing an overcapacity problem. The price of boxes is now less than the cost of building them.
Surge in production leads to overcapacity as equipmnt demand fails to keep up with supply
CONTAINER MANUFACTURERS ARE FACING OVERCAPACITY AND FALLING PRICES.
OVERCAPACITY and demand weakness have pushed through to the container equipment sector, with prices falling to below building costs in the final quarter of 2018, according to Drewry.
A surge in production in 2018 led to oversupply that is now being reflected in a steep fall in prices.
“Box builders are now struggling to cover their costs, and the likelihood is that they will rein in production in an effort to stem their losses and shore up prices,” the maritime research consultancy said. “This could have implications for the availability of container equipment in maritime shipping.”
While a decline in steel prices had eased pressure on equipment manufacturers, prices had fallen faster than costs, and builders were losing $100-$200 per box.
Moreover, with container shipping demand forecast to grow more slowly in 2019 than previously thought, even if manufacturers were to reduce production it would do little to help raise prices.
“The container equipment lease industry has been leading the way in terms of investment in new equipment, and their fleets are starting to look a little bloated,” Drewry said. “With the market increasingly saturated, utilisation has started falling and lease rates have begun to decline. The prospects for 2019 suggest that things might get worse for leasing companies.”
It noted that containership capacity supply had expanded faster than demand growth in 2018, which it said would create increased demand for leased equipment.
But this would be tempered by a slowdown in 2019 as newbuilding deliveries are pushed back to 2020.
This would, however, calm nerves among beneficial cargo owners, who have been concerned about tightening equipment availability.
“Container equipment prices and leasing rates are expected to continue declining this year until stabilising in 2020,” Drewry said. “While this market weakness is expected to slow production of new equipment, equipment availability will remain sufficient thanks to moderating trade and vessel fleet growth.”