CNY 2023: Deployed capacity remains high, rates may tumble
With shipping lines sitting on piles of cash, there may be another price war: Sea-Intelligence
Chinese New Year (CNY), traditionally, sees a production slowdown in Asia, and shipping lines blank sailings to bring supply in line with demand.
"In 2020, we saw an extension of CNY due to the Covid outbreak while shipping lines kept capacity high in both 2021 and 2022 in order to cater to the high demand levels," says the latest update from Sea-Intelligence.
"Given that demand growth has now stagnated, and freight rates are still dropping, it would make sense for the shipping lines to blank additional capacity during CNY 2023 to try and stem the bleeding freight rates."
That is, however, not the case. As we see in figure 1, when we compare 2023 with both 2019 and the average capacity growth rate of 2015-2019, we see an extraordinary increase in deployed capacity, the update added.
"Asia-North America West Coast is seeing capacity growth of 35-38 percent, Asia-North America East Coast a staggering 57-59 percent, and Asia-North Europe of 28-42 percent. Asia-Mediterranean is the only trade lane that is closer to the pre-pandemic levels," says Alan Murphy, CEO, Sea-Intelligence.
The development is concerning as despite falling demand, deployed capacity during CNY 2023 is slated to be higher than the deployed capacity in 2021 where demand was absolutely surging, the update added.
"If demand continues to be sluggish, freight rates will continue to tumble given these capacity levels. With shipping lines sitting on piles of cash, further helped by a highly profitable Q3, we might end up in a situation where there is another price war, reminiscent of the one we saw in 2015-2016."
