Abundant vessel space and weak transportation rates to and from the United States should not pose a bankruptcy danger to international container ship fleets over the next few years, according to U.S. regulators.
During a May 1 meeting at the Federal Maritime Commission (FMC), which oversees the U.S. international container trades, a top policy analyst at the agency said one reason for that assessment is that vessel utilization is relatively high.
"There are not a lot of idle vessels, particularly in the larger vessel-size categories," said Anthony Homan, director of the commission's office of Economics and Competition Analysis. "So I don't see [bankruptcy] as an issue." He noted that some carriers have benefitted from higher volume as a result of shippers attempting to beat tariff deadlines or looking to build inventory ahead of threatened tariffs, particularly in the trans-Pacific trades. However, "capacity is outgrowing volume year-in year out, so there's ample capacity to serve the industry. If you look at the rate indices, they're much lower than they have been in the past."
The state of capacity supply and volume demand is reflected in spot transportation rates into the U.S., which were characterized by Maritime Strategies International in April as facing a "challenging" 2019. The advisory service forecast round-trip trans-Pacific spot rates at $1,907 per FEU through May and rising to $1,978 per FEU by August.
Reporting on new vessels on orders by some of the major carriers, FMC analysts pointed out to the agency's commissioners that Evergreen, a major player in the trans-Pacific – U.S. West Coast trade lane, had 400,000 teu (twenty-foot equivalent units) worth of vessel capacity on order, which was roughly 37 percent of the carrier's current total current capacity. MSC, one of the bigger carriers in the U.S.- trans-Atlantic trades, has 400,000 teu worth of vessel capacity on order, or about 12% of their current capacity.
"There is a decent enough orderbook right now, but if you have a massive spike in global demand, things could change," Homan said. But he acknowledged that forecasting swings in the container sector can be difficult. "Conversely, if you have a global slump, you will have more excess capacity."
When asked by commissioner Daniel Maffei how the IMO 2020 regulation – requiring carriers to burn cleaner, more expense fuel – could affect carriers financially, Homan said it would be useful to "use history as a guide." He said the last time regulators ratcheted up fuel standards in 2012, "you had a nice little increase in bunker fuel prices, where it stabilized for a couple of years but then went back down to historical levels a couple years after that," he said.
Homan also expects, as do others, the IMO 2020 regulation to have a ripple effect through the supply chain.
"There's going to be a lot of pressure on middle distillates, like diesel fuel, so there will probably be a bump in diesel prices – which will probably affect trucking. When getting goods to final destination, that could also affect port choice as well."
Image sourced from Pixabay
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