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Scrubber refits will take out some capacity ahead of IMO 2020, but pressure will remain in charter rates for smaller ships, says Alphaliner

OVERCAPACITY continues to stalk the container shipping segment despite a slowdown in orders and deliveries in the past year, with surplus tonnage having a related impact on freight rates.

While rates in the first half of 2019 were better than in the year-earlier period, the momentum had since turned negative, with average spot rates now 16% down from January, Alphaliner said in its mid-year review of the box market.

“The capacity pressure is most apparent on the Asia-Europe routes, where freight rates have fallen by over 30% from their peaks early this year as carriers are struggling to rein in the capacity increase, which is 6% higher compared with a year ago,” Alpaliner said. “Carriers are trying to mitigate the capacity increase through a series of blank sailings in July and August, but these moves have so far failed to reverse the rate slump.” 

No new services have been added on the transpacific trade so far this year and the spot freight rate decline was largely contained to just 10% to the US east coast and 20% to the US west coast, according to Alphaliner.

Nevertheless, extra loaders were being deployed onto the Pacific as the peak season begins, and new strings from the 2M alliance and Zim could add pressure here too.

Alphaliner data showed the containership fleet grew by 3.7% in the year to July 1.

“While the rate of fleet capacity growth has decreased from 6.6% in July last year to 3.7% today, slowing demand growth has weighed heavily on the market’s overall performance,” it said.

This has shown through in what Alphaliner describes as a “two-tier” market for chartering, where vessels over 6,000 teu have commanded increasing rates but smaller ships have lost ground.

“The looming IMO 2020 sulphur rule deadline has spurred demand for larger ships to fill sailing gaps caused by tonnage removed from the market to undergo scrubber retrofits,” Alphaliner said.

It noted that 12 ships over 7,000 teu were undergoing scrubber refits.

“This trend is expected to continue for the remainder of the year and a busy scrubber retrofit schedule will continue to bolster demand for ships of 5,000 teu and above,” Alphaliner said. “Any impact from vessel downtime related to scrubbers will however be more limited for the smaller sizes.”

Carriers such as Mediterranean Shipping Co, CMA CGM and Evergreen, which have orders in delivery for ships between 11,000 teu and 23,000 teu, would use newbuildings to cover for scrubber refits, but these will ultimately add to the overcapacity issue, particularly those that can only be utilised on the Asia-Europe trades.