Asia Europe trade set for overcapacity within months as lines receive new vessels and keep ordering more.
The next 12 months will see an 11.5% increase in capacity on the Asia-Europe trade which will likely lead each alliance to close one service to try and balance supply with demand.
By the end of 2019, 78 additional vessels with a combined capacity of 1.4 million TEU will have been added to the trade, which will take capacity up another 23.2%, threatening the positive supply-demand balance that has improved the profitability of container shipping lines in 2017.
As we reported at the beginning of the month CMA CGM’s nine-ship order for 22,000 teu vessels is a major contributor to this sharp capacity increase.
The impact of increased capacity is likely to be felt as early as the final quarter of 2017 with analysts suggesting that supply on Asia-Europe will increase by 12% before the end of the year, prompting carriers to blank a significant number of sailings to maintain a positive balance supply demand balance.
It is far better for shippers that the lines capacity should stay ahead of supply, but excessive supply is not ideal for lines or shippers.
There is room for rate negotiation across the alliances, but the possibility of line profitability falling increases and it also raises the likelihood of service levels diminishing.
Increased capacity is markedly spread across the alliances with 2M only experiencing 3.2% growth, THE Alliance 11.9% and Ocean Alliance a massive 24.6%.
With demand unlikely to grow faster than 5% it is inconceivable that the Asia-Europe trade will be able to absorb this additional capacity without blanking sailings, or moving vessels into other trade lanes.
Moving large vessel to other routes, however, does have a potential downside, as this would lead to a need to reduce the number of services, as they would be shorter and smaller than Asia-Europe.