ECONOMY

Executives warn of growing container ship shortages

Container shipping updates

For months the world’s largest shipping groups have grappled with container shortages and a lack of berths in ports, as seesawing demand and Covid-19 heaped pressure on global logistics. Now another shortage is occupying the industry’s attention: that of the ships themselves.

Executives have warned that, despite a recent surge in orders for new vessels, the availability of container ships is likely to remain strained in coming years given soaring demand for their services and the complexity of retooling fleets for environmental reasons.

Xavier Destriau, chief financial officer of Israel’s Zim, one the world’s largest shipping groups, said that the tight supply of vessels posed “a potential major threat” given that many companies have hesitated until this year to order new capacity, while many old ships are overdue for scrapping.

“We are looking at the potential risk of pressure on supply in terms of vessels,” he said. “We’re talking three, four or five years along the line.”

His warning was echoed by Andi Case, chief executive of Clarksons, the world’s largest shipping broker, who said the number of shipyards globally had dropped by two-thirds since 2007 to about 115. “We are miles off oversupplying the fleet,” he said.

Those shipyards still in operation have received a deluge of orders after container shipping groups raked in unprecedented profits over 2020-21, after surging demand for goods spurred a meteoric rise in freight rates from the second half of last year. 

Shipping groups have ordered vessels capable of carrying 3.2m 20-foot containers so far in 2021, the most in the year to date on record, according to Clarksons Research, its analytics arm.

But there are concerns this will still not be nearly enough to meet global demand. New orders are equivalent to 20 per cent of the current fleet’s capacity — up from around 10 per cent in 2019, but far below the 60 per cent level in 2007.

A vessel shortage raises the prospect of persistently high freight costs, albeit lower than current exorbitant levels. The industry had been plagued by the opposite problem in the past decade with a glut of vessels straining profitability, leading to the collapse of South Korea’s Hanjin Shipping and forcing consolidation.

Some industry figures still privately express concerns about over-ordering, despite the increase in global demand, pointing to the shortage of container equipment and infrastructure bottlenecks as more pressing issues. But a lack of extra capacity would mean supply chains are even more vulnerable to one-off disruptions such as the Chinese port closures that have roiled global trade this year. 

Another reason for industry hesitancy is over the type of vessels to order given incoming environmental regulation.

Global rules on energy efficiency that come in from 2023 have spurred interested in liquefied natural gas-powered ships, but orders have been stuck at the same percentage of total orders since October 2019.

LNG reduces greenhouse gas emissions by about a quarter compared with traditional fuels but it is controversial because it locks in substantial emissions for 25 years. Environmental activists believe the industry needs to make a more radical leap to clean fuels such as green ammonia or hydrogen. 

Maersk, the world’s largest container shipping group, has shied away from ordering LNG-powered vessels because of technological and regulatory uncertainty.

But Destriau and Case argue shipping companies should embrace LNG and act now to reduce emissions rather than waiting for new technologies to arrive. Zim has signed long-term charter agreements for 20 LNG-fuelled vessels this year.

“Is it OK to wait 10 years to say ‘maybe by then hydrogen will be ready’?” said Case. “The drive should be to eradicate the heavy fuel oil-powered ships.”

 

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