Megaships loom large on container market dynamics

The trend towards megaships is not only inevitable, but ongoing and lower rates as a consequence of the big injection of capacity next year will incentivise container lines to chase down their costs in the lower rate environment, said Bank of America Merrill Lynch Head of Asia-Pacific Transportation Research Paul Dewberry.

Speaking at the Asian Logistics and Maritime Conference in Hong Kong, Dewberry added that the research house sees rates heading lower over the next two to three years and that the market is not done with the trend of megaship upsizing.

“As a result realistically we don’t think the industry can get back to generating meaningful profitability until such time as everyone has completed that upsizing process,” he said. Dewberry added that it would be at least three to four years before a meaningful end game in the container shipping space can be seen.

The key to the future of the liner market is new orders, Dewberry emphasised. “If we prevented every single liner from ordering any vessel 2016 could look a very good year but the problem is I don’t think we’re going to have that and rather over the next 12 to 18 months we’re going to see a new round of megaship orders,” he said. Dewberry noted of course that with rising interest rates the pace of this expansion in capacity could be slowed down.

He went on to add that the problem is exacerbated by smaller players being emboldened by their participation in alliances to order these megaships with the presumption that they can use their partners’ boxes to fill them. The difficult trading conditions since the global financial crisis should have forced many of these to have exited the trade but almost all of them are still around but cannot survive or even hope to make money with the existing vessels they have. “This is clearly an industry that needs to consolidate,” he concluded.
Source: Seatrade Global