MAKE HAY WHILE THE SUN SHINES… …The Shipping Bubble is Bound to Burst

Shipping lines have not previously had so much profitability as they have enjoyed in 2020 and 2021. The COVID-19 pandemic has done wonders for the industry, everything went right for them financially. Environmental regulations forced them to put ships into drydock just as they were urgently needed in a demand driven surge that was desperately in search of spare capacity.

The COVID-19 Pandemic hit the ports and logistical supply chain hard with manpower shortages which resulted in congestion on both sea and land. Congestion is bad for the management of shipping capacity as ships get tied down in queues to get to a free terminal.

Once there, labour was in shortage, trucks and rail were also impacted. Everything led to a sharp slowdown in the movement of goods. Virtually no one was spared as Asia, Europe and North America were hit as well as ports in South America and Africa.

Lack of capacity in a time of surging demand is always good for shipowners and carriers. Freight rates surged in 2021 at a rate not seen in a very long time. Then comes the question about what to do with the income.

As demand for new tonnage in 2020 was fairly low, 2021 so far has turned out to be a bonanza for shipbuilders as virtually the whole industry rushed to the shipyards to order new capacity. For the container industry this was mostly vessels of 18,000 to 24,000 TEU capacity. Almost no alliance carrier has been left behind.

And here we come to the bubble bursting issue. The new orders will be delivered within two to three years, and if history is anything to go by, this will coincide with demand fizzling out after two years of dramatic growth.

Ports face a further challenge. As the Asian trades will be dominated with the ultra large containerships operating on minimal port call services, there will be mounting pressure on available quay space to deal with the 400 plus metre ships with 25 rows of containers needing to discharge thousands of containers in the shortest time possible.

Given current problems these challenges look tough indeed. Time to prepare is short.