TWO YEARS AFTER the global financial crisis, the container-shipping industry looks like it is headed for an even deeper slump.

 

Amid the worsening debt crisis in Europe and high unemployment in the US, global economic growth is once more under threat. Recently, the Purchasing Managers’ Indices in Europe and China, which were rising last year, have started falling once more, according to data presented by Nomura. As consumers from Barcelona to Beijing turn more tight-fisted, demand for everything from household appliances to designer clothes is weakening, slowing the flow of these goods from factories to department stores around the world and making it tougher for shipping companies to fill their container vessels.

 

The sorry state of affairs is compounded by a vessel glut, which continues to undermine profitability in the industry. Liners desperate to cover costs regularly undercut their larger, more efficient rivals with cheaper freight rates, and sometimes even set sail at a loss. To make matters worse, many of the vessels hitting the market now were ordered during the previous peak when prices were sky-high, and built larger to accommodate an expected rise in container volumes. Indeed, one of the gravest estimates given by experts is that the number of ships on order is 40% of the global fleet.

 

“The fall in demand over the past few quarters was much worse than anticipated,” former APL president Eng Aik Meng tells The Edge Singapore. APL is the container-shipping arm of Neptune Orient Lines (NOL). “People assumed that demand would eventually match supply, but they failed to see that global trade lanes are intertwined and poor demand on one route ultimately results in poor demand in connecting routes too.”

 

Now, things might be getting worse. Earlier this year, Maersk Line ordered at least ten 18,000 twenty-foot equivalent unit (TEU) vessels — the biggest container ships in the world — which will be delivered between 2013 and 2015. The shipper will deploy these new vessels on the Asia-to-Far East routes. And, because these gargantuan ships are more efficient than smaller and older vessels, they are likely to ultimately force existing operators out of that trade lane into the already crowded Transpacific and intra-Asian lanes.

 

Rather than simply retreating and accepting a loss in market share, however, the big shipping players with sufficient financial muscle are choosing to fight back, says Jason Chiang, senior manager at Drewry. Traditionally conservative liners such as Taiwan’s Evergreen, which had refrained from placing any new orders for ships over the past few years, are now feeling the pressure to start ordering larger vessels to stay in the game. “It appears that the industry would rather increase their market share than collectively preserve returns,” says Chiang. “The passive players will be weeded out.”