SlothSea

Declining container market and capacity management: the MSC case

Since the second half of 2022 container shipping is facing declining demand and growing capacity. BIMCO, as stated in the “Container Shipping Market Overview and Outlook Q2 2023”, underlines that liner operators’ margins are threatened by a weak supply/demand balance. The BIMCO base case scenario expects a stagnant 0,5-1,5% demand increase in 2023, with several differences between the main trades. Indeed, during the first half of 2023, several European major ports have faced double-digit drops (Top-15 European container ports, H1 2023 – PortEconomics).

Liners strategies, thanks to recent skyrocketing profits, have all focused on expanding their fleets; overcapacity is already taking place and will get even worse, since this year will end with more than 2 million TEUs delivered. 2024 will smash any record, when a further 391 ships of almost 3 million TEU capacity is forecast to enter service.

Mediterranean Shipping Company wins hands down the recent newbuild rally with an astonishing 1,5 million TEUs to be delivered within 2027, accounting for 28% of the existing fleet. In the short run, blank sailings are already taking place, especially in the Transpacific trade, with a 17% gap between proforma and effective deployed capacity.

In the long run, demand-supply imbalance can be weakened by demolitions and chartering policies.

Containership scrappage is expected to take off in the next years, but as confirmed by the think tank MDS Transmodal MSC already represents the market leader (Chart 1), accounting for almost 50% of the container scrap market.

Thanks to the ability to react to demand peaks and new service opportunities across its network, MSC has historically also pushed up capacity chartering already available vessels.

Even though S&P brokers report MSC remains by far the most active line in the second-hand market, with more than 300 second-hand containerships bought since August 2020, Alphaliner statistics underline that the Swiss liner is rapidly switching from old chartered vessels to new deliveries. Chart 2 underlines that since 2021 chartered capacity decreased by 15%, partially compensating the strong increase related to ship deliveries. MSC capacity related to chartered vessels accounted for 72% of the total amount just 2 years ago; in less than 2 years it dropped to 53%.

Pushing up demolitions and switching from chartered vessels to new ones will reduce demand-supply imbalances, but will it be enough considering the expansion projects scheduled for the next years?

container overcapacity

Facebook
Twitter
Pinterest
LinkedIn
alberto.testino1996

alberto.testino1996

Leave a Reply

Your email address will not be published. Required fields are marked *