When Shipping Overcapacity Has Different Stories

Ask the customers who just had their cargo rolled off a ship about overcapacity. Odds are you will hear a very different story from the one the steamship lines report.

Overcapacity is the talk of the shipping world, especially in the China to Europe trade lanes. Too many ships and not enough demand tumbled freight rates to lows not seen since the Great Recession in 2009. That’s according to a recent article in the Journal of Commerce.

If that’s the case, why are shippers rolling cargo? In part, it is due to a buying binge that most of the steamship lines went on in the last three or four years. The new vessels have large capacity – in the 8,000 to 10,000 TEU (twenty-foot equivalent units), meaning the vessels can hold 10,000 to 20,000 containers.

Unfortunately, for the shipping companies, the unfavorable market conditions with rates at very low levels and high fuel costs resulted in huge losses in 2011. An article at Supply Chain Digital reports that the overall profit for A.P. Moller-Maersk, the world’s largest container shipping company, fell 82 percent.

The large ships had a lack of freight-paying containers. As a result, many of the shipping companies “laid up” the ships and took their oldest ships out of service. The companies also formed agreements to swap slots in vessel sharing agreements. So, what you have is one ship arriving at the New York seaport, loaded with cargo from five steamship lines instead of five ships arriving with its own company’s cargo.

In the end, getting cargo booked to certain ports is difficult, especially with cargo considered “low value” with lower freight rates. Shippers load higher paying cargo and leave the low value cargo on the pier, rolling it to the next vessel – not a very happy ending to the story.