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Shipowners have ordered a record number of container vessels on the back of soaring profits, prompting warnings of profligate spending by the handful of large shipowners that dominate the industry.
The total capacity of container ships on order hit 8.4mn 20-foot containers in November, according to Braemar, reaching the highest level since the shipbroker began collecting data in 2000.
The record order book, which surpasses the level reached following a similar spending spree when disruption during the Covid-19 pandemic boosted earnings, have come despite uncertainty over the outlook for global trade.
“It’s a huge amount of investment in fleet growth. [Shipowners] have got money to spend,” said Jonathan Roach, container market analyst at Braemar.
But “the risk of overcapacity is there, particularly in an uncertain global economy.”
Shipping companies have been splashing out following a surprise surge in profits since late last year, when disruption caused by the Houthi militant group’s attacks on vessels crossing the Red Sea helped drive up the cost of shipping.
Italian-owned Mediterranean Shipping Company, which already has the industry’s largest fleet, led the pack with 107 container vessels on order as of November. CMA-CGM is close behind with 103 vessels.
But it is unclear how long the Red Sea attacks will continue to boost earnings. Meanwhile, incoming US president Donald Trump’s promise to turbocharge protectionism in the world’s largest importer is also threatening to hit global trade from next year.
Before the Houthi attacks, which have forced lines to sail longer routes and constrained the supply of ships, “you had lossmaking freight rates with a much smaller fleet than you see today,” said Peter Sand, chief analyst at shipping market tracker Xeneta.
“Imagine all carriers will return to the Red Sea. That will bring rates to the floor. The overcapacity will be so massive.”
Individually, the decision to order more ships when profits are high might “make perfect sense,” said Niels Rasmussen, head of shipping market analysis at industry body BIMCO, who pointed out that MSC was stocking up on vessels after deciding to end a ship-sharing alliance with rival AP Møller-Maersk and “go it alone” from next year.
But “when you add all other decisions up [by every shipowner] then it does look a little bit excessive.”
By 2026, container shipping supply is forecast to have increased 46 per cent compared to 2019, before a boom in ship orders began, according to Bimco. But the group only expects cargo volumes to increase demand by 22 per cent over the same period.
Bimco warned that if countries retaliate in kind to Trump’s threat to increase import tariffs, this could lead to even weaker global trade and container volumes than it has forecast.
While many ships have been ordered to replace ageing sections of the fleet, Rasmussen warned that it could be some time before older vessels are taken out of service. From June, an internationally agreed Hong Kong Convention will enter into force and set restrictions on which ship recycling yards can be used, based on environmental and labour standards.
“There are some capacity restrictions as to how many ships you can suddenly recycle in a year. You have to consider the Hong Kong Convention is coming into force. Those facilities that are there need to meet some strict requirements,” said Rasmussen.
The container shipping industry already faced similar premonitions of oversupply following its spending spree during the Covid-19 pandemic. Those fears were quickly assuaged when the Houthi attacks flipped expectations just months after the end of the health crisis.
Maersk, which only in February was bracing for a $5bn loss this year, is now forecasting an underlying profit of up to $5.7bn.
“If we had spoken 12 months ago, we could have had the same conversation about [oversupply],” said Johan Sigsgaard, chief ocean product officer at Maersk.
He said that Maersk, which has 47 vessels on order, was expecting ships to continue avoiding the Red Sea “well into 2025”.
“We see a more volatile world. [It will become] harder to predict situations around supply and demand,” Sigsgaard said.
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