THE Covid crisis had every possible vessel sailing, but with the scare over, spot rates have plunged and risk starting a price war looms say analysts at Sea-Intelligence.
Sea-Intelligence says capacity-cutting blank sailings may not be coming quickly enough to prevent a price war as volume falls even further during and after Chinese New Year.
Blank sailings to bring supply in line with demand will continue and likely increase in the coming weeks, but will it be enough. The Port of Los Angeles, for example, was forecasting at least 11 blanked sailings to the port during December following 13 blanked sailings in November.
Chinese New Year is also earlier in 2023. The holiday is January 22 with China and Vietnam having an official week-long holiday running till January 27.
Normally there is a rush to move goods in the weeks before the holiday while many companies slow operations and reduce capacity for several weeks around and after the holiday.
But Ocean Network Express (ONE) chief executive Jeremy Nixon said he expected factories may take four or five weeks off in January and February and his firm was expecting carriers to reduce capacity by as much as 50 per cent and slowly build back in March or later.
Alphaliner at the beginning of December noted that 1.4 million TEU of capacity has already been idled or a total of 261 ships, about five per cent of global capacity. Meanwhile other analysts say first quarter idled capacity could rise to two million TEU.
Said Sea-Intelligence CEO Alan Murphy: ‘In 2020, we saw an extension of Chinese New Year (CNY) due to the Covid outbreak. Given that demand growth has now stagnated, and freight rates are still dropping, it would make sense for the shipping lines to blank additional capacity during CNY 2023 to try and stem the bleeding freight rates.
‘When we compare 2023 with both 2019 and the average capacity growth rate of 2015-2019, we see an extraordinary increase in deployed capacity,’ said Mr Murphy.
Asia-North America west coast is seeing capacity growth of 35 to 38 per cent, Asia-North America east coast of a staggering 57 to 59 per cent, and Asia-North Europe of 28 to 42 per cent. Asia-Mediterranean is the only trade lane that is closer to the pre-Covid levels Sea-Intelligence notes.
Said Mr Murphy: ‘This development is quite concerning, as despite falling demand, deployed capacity during CNY 2023 is slated to be higher than the deployed capacity in 2021, where demand was absolutely surging. If demand continues to be sluggish, or outright contractions, given these capacity levels, freight rates will continue to tumble.’
With the shipping lines sitting on piles of cash, further helped by a highly profitable Q3, Sea-Intelligence speculates that the industry might end up in a situation where there is another price war, reminiscent of the 2015-2016 price war.
