Overcapacity Stifles Growth

June 11th, 2013 - Still no signs of recovery for the air and maritime markets

The race to expand fleets on the world’s busiest trade routes between Asia and Europe is dampening the fragile maritime and air-freight markets worldwide.

“We are suffering from overcapacity at a time when demand remains weak,” says Denis Sanguinetti, sea-freight procurement manager at Bolloré Logistics in Paris.

“The continued addition of new planes is suffocating any growth,” adds Georges Van Hove, manager of airfreight procurement at Bolloré Logistics. “The market is stagnating.”

In the second quarter alone, 20 new ships with a capacity of between eight and 16,000 TEUs or twenty-foot containers will be delivered, mainly on the route from Asia to Europe. Demand, meanwhile, will grow by between only four and five percent worldwide, Sanguinetti predicts. Overall, maritime capacity worldwide will increase by 7.5 percent this year, estimates Sanguinetti. That represents the 1.5 million TEUs that is expected to come on line in 2013, he notes, with a marked increase in super-sized container vessels with a capacity of over 10,000 TEUs.

These gigantic ships are mainly used to service the world’s biggest trade routes between Asia and Europe. But they will have a knock-on effect on other routes such as Asia to Africa and Latin America, Sanguinetti says, as the existing ships of between 6,000 and 8,000 TEUs will be routed there.

The result will likely be continued strong price movements in the maritime market, especially on routes between Asia and Europe. “”We will see high price volatility for the rest of the year,” Sanguinetti adds. “Prices will fall sharply but then the shipping companies will take measures such as slow steaming, withdrawing loops and anchoring vessels to shrink supply.”

The air-freight market faces even greater headwinds partly because of competition from the sea. Van Hove estimates that around ten percent of the worldwide air cargo market is switching to sea transport in a bid to reduce costs at a time of continued economic slowdown. He expects demand to fall even on routes such as Asia to Africa that have showed strong growth in recent years. Demand for air freight between these two continents will reach just one percent in the first quarter of this year compared to almost ten percent in the same period last year, Van Hove estimates.

Worldwide, Van Hove expects flat growth in demand for air cargo of between zero and two percent this year.

Most of the new air-freight cargo capacity is concentrated on routes between Asia and Europe and Asia and Africa, Van Hove notes. Middle Eastern carriers such as Qatar Airways, Emirates Airlines of Dubai and Ethihad Airways of Abu Dhabi continue to add planes and offer low prices in a bid to gain market share, he says.

This combination of slow demand, high capacity and aggressive pricing by some Middle Eastern carriers will likely continue to hit air cargo rates this year. “The price war is continuing and we don’t know when it will end,” says Van Hove.

“Already, rates have fallen by between one and two percent since the beginning of the year.”

Key Figures
  • 20%

    More fuel-efficient for the Boeing 787 and the Airbus A350

  • 70%

    of Urbanisation is expected by 2050

  • 27

    mega-cities are expected by 2050, with at least 10 million people, compared to 1...

  • +18,4%

    of growth for E-commerce retail market in Europe in 2015

  • 82%

    of goods are moved by road

  • 1 billion

    Population in Africa

  • 60%

    of Africa’s population will be urbanized by 2050

  • 7,5%

    of growth for Indian GDP in 2014

  • 4,9%

    of growth for African GDP in 2016

  • 6,1%

    of growth for East Asian GDP in 2015, the world’s fastest-growing region

  • 19 224 teus

    transported by the MSC Oscar, the largest container ship in the world

  • 396 m

    is the size of the MSC Oscar ship

  • 120 h

    is the Non-Stop Flight Record done by Solar Impulse

  • 4,5%

    of growth in 2015 for Global Airfreight demand