Ocean Carriers Idle Container Ships in Droves on Falling Trade Demand
Date: Thursday, April 9, 2020
Source: The Wall Street Journal
More than 10% of the global boxship fleet are anchored as Western markets lock down against the coronavirus pandemic
Container ship operators have idled a record 13% of their capacity over the past month as carriers at the foundation of global supply chains buckle down while restrictions under the coronavirus pandemic batter trade demand.
Maritime data provider Alphaliner said in a report Wednesday that shipping lines have withdrawn vessels with capacity totaling about 3 million containers in efforts to conserve cash and maintain freight rates.
Alphaliner, based in Paris, said more than 250 scheduled sailings will be canceled in the second quarter alone, with up to a third of capacity taken out in some trade routes. The biggest cutbacks so far have hit the world’s main trade lanes, the Asia-Europe and trans-Pacific routes.
“No market segment will be spared, with capacity cuts announced across almost all key routes,” the report said. “While the larger ships will be cascaded to replace smaller units on the remaining strings, carriers will be forced to idle a large part of their operated tonnage.”
The cutbacks are hitting the network of businesses, from ship-financing to vessel-leasing companies, behind maritime supply chains.
“We had two ships given back to us three months early in the past week alone,” said a Greek owner, who charters his fleet of 19 vessels to some of the world’s biggest liners. “Instead of boosting capacity for the peak summer season, we are discussing where to lay up our ships. It’s a crazy time.”
Ship brokers say giant ships that move more than 20,000 containers each now are less than half full.
“It will change when American and European consumers get out and start spending again, but this can be weeks or months away,” said George Lazaridis, head of research at Allied Shipbroking in Athens.
Sailing cancellations grew from 45 to 212 over the past week, according to Copenhagen-based consulting firm Sea-Intelligence. The “blanked” sailings are stretching into June, indicating operators expect the traditional peak shipping season, when retailers restock goods ahead of an expected buildup in consumer spending in the fall, will be muted this year by the lockdowns extending across economies world-wide.
France’s CMA CGM SA, the world’s fourth-largest container line by capacity, said this week it is idling 15 ships because retailers are pulling back orders over falling demand from European and American consumers.
The decision to idle, or “lay up,” ships is a difficult option for owners, as the vessels continue to generate costs without offsetting income.
There are two ways to idle ships. In a “warm layup” vessels are anchored and staffed, ready to go relatively quickly when demand resumes. This means saving on operating costs such as fuel but continuing to pay crew salaries and insurance fees and make charter payments.
In a “cold layup” a skeleton crew is kept on board for general maintenance but most of the ship’s systems are shut down. Returning the ship to service can cost millions of dollars and requires extensive testing to certify that the ship is safe to sail.
Many owners choose to lay up bigger vessels in Southeast Asia, mostly in Malaysian and Indonesian waters.
“It’s cheaper to book sea space compared to other parts of the world and ships can be deployed easily on the Asia-to-Europe trade route when things get back to normal,” Mr. Lazaridis said. “But laying up ships for an extended period is a mortal danger for any operator.”