The future of the Europe-Asia shipping route is in times of crisis! Shipping companies may suspend some vessels in response

30 Nov 2023

By Vincent Wen.    Photo : Bernd  Dittrich

In fact, the profitability of shipping companies sharply declined in the third quarter of this year, with severe losses expected in the fourth quarter, putting significant pressure on carriers from their shareholders. They are actively seeking solutions to address cash flow issues and ensure adequate preparation for the start of the new fiscal year.

Among the networks of various carriers, the loss situation is most severe on the Europe-Asia route. Faced with dwindling demand, shipyards are continuously receiving a large number of 24,000 TEU (twenty-foot equivalent unit) ultra-large vessels, attempting to phase them into the Asia-Northern Europe route. This puts ship managers under greater pressure.

"The problem is that when demand is weak, even if vessels half the size are sufficient, we still need to try to fill these massive vessels," expressed a contact person from a carrier. "These large vessels are very close to being idle and suspended from service." he further added.

This information is gradually permeating the market. A UK-based non-vessel-operating common carrier (NVOCC) mentioned that, so far, they have only had preliminary contract negotiations with one carrier and find the situation "worrisome."

"Carriers are not as excited as usual. The current situation is different from the past few years; there will only be losses in the future, not profits as in the previous years," he added. "Shipping companies indicate they are prepared to idle vessels, reduce services until the market
improves, which is quite concerning."

So far, shipping companies have mainly relied on blank sailings, super slow steaming, and voyage postponement strategies to address supply-demand imbalances on routes. However, these measures failed to be effective in the November 1st General Rate Increase (GRI), and a December price increase seems unlikely.

In this context, analysts from a Danish shipping finance company recently made particularly pessimistic assessments of the shipping market. The company stated, "Due to rapid fleet growth and low demand, fleet utilization is weak, leading to a significant decline in freight rates." In addition,
the "various measures" to limit losses have so far had "minimal effect."

As of the first 10 months of this year, the global container fleet added approximately 1.5 million TEUs of container capacity, a 6% increase. Another 2.4 million TEUs are planned for delivery next year, while ship scrapping remains low.

It is evident that there is a significant disconnect between long-term oversupply of container capacity and idle container fleets. According to a recent survey by Alphaliner, the idle container fleet has actually decreased slightly, accounting for 4.4% of the global fleet.

However, everything now indicates that with shipping companies employing their last capacity management strategies and suspending more services, the number of idle vessels will increase significantly.

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