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Ship Glut Clouds Long-Awaited Recovery

Container shipping is emerging from a painful six-year slump, but a glut of tonnage that will hit the water over the next two years threatens to derail the nascent recovery.

In recent months, Mediterranean Shipping Co. and CMA-CGM SA have each announced orders for 11 mega-vessels. Together, with existing plans by Asian giants like Cosco Shipping Holdings Co. and Evergreen Line, the moves mean dozens of these vessels will be delivered by 2020.

The ships - as tall as the Empire State Building if turned upright - can move 20,000 containers each and will sail between Asia and Europe, where operators often undercut each other, pushing rates below break-even levels.

“The gap between supply and demand is closing, but there is still tonnage coming in, so the problem is not going away,” said Alan Murphy, chief executive of Copenhagen-based SeaIntel Maritime Analysis.

Shipping analyst Alphaliner said shipping demand would have to grow 8 percent annually for the overhang to be cleared next year. If growth is a more realistic 5 percent, overcapacity will extend into 2020 — as long as there are no new orders on top of what is already on the books.

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In recent months, Mediterranean Shipping Co. and CMA-CGM SA have each announced orders for 11 mega-vessels. Together, with existing plans by Asian giants like Cosco Shipping Holdings Co. and Evergreen Line, the moves mean dozens of these vessels will be delivered by 2020.

The ships - as tall as the Empire State Building if turned upright - can move 20,000 containers each and will sail between Asia and Europe, where operators often undercut each other, pushing rates below break-even levels.

“The gap between supply and demand is closing, but there is still tonnage coming in, so the problem is not going away,” said Alan Murphy, chief executive of Copenhagen-based SeaIntel Maritime Analysis.

Shipping analyst Alphaliner said shipping demand would have to grow 8 percent annually for the overhang to be cleared next year. If growth is a more realistic 5 percent, overcapacity will extend into 2020 — as long as there are no new orders on top of what is already on the books.

Read Full Article