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Shipping Insiders Caution Against New Capacity as Prices Surge

Shipping Insiders Caution Against New Capacity as Prices Surge

Shipowners and financiers should avoid sinking money into new container vessels despite a global crunch because record orders have driven up prices, according to industry insiders.

Industry players looking to buy new vessels at current prices will likely find themselves “overextended,” according to Arjun Batra, group managing director of Drewry Shipping Consultants, who spoke Wednesday at a ship finance conference at Singapore’s Marine Money Week Asia. It’s better to invest in maritime technology and decarbonization, he added.

Shipping Insiders Caution Against New Capacity as Prices Surge

The container shipping market is experiencing one of its best years as a perfect storm of Covid-driven purchasing demand, port congestion and typhoons boost freight rates. Orders for new shipping capacity reached a record of about 3.5 million twenty-foot containers so far this year, exceeding the previous high from 2007, according to Drewry. 

“Asset prices have doubled in six months,” Zhao Yang, executive director, at CMB Financial Leasing, the loans unit of China Merchants Bank, said at the conference. While the firm made several transactions with major liner companies in the first half of this year, it “no longer sees any more possibilities to finance new ships in the last few months of the year.”

The comments add to sentiment expressed from within the industry that rising global trade driven by consumer demand and exacerbated by supply chain disruptions may start to ease. Germany’s Hapag-LLoyd AG, said this week it has decided to stop increasing spot freight rates on routes out of Asia to Europe and the U.S. as it sees an end to the rally that has seen prices hit records.

While freight rates may not maintain current levels for much longer, they are unlikely to plummet, said Steve Saxon, partner at McKinsey & Company, speaking at the same conference. “People are going to continue spending on goods and services, we don’t see this dropping off,” he said.

©2021 Bloomberg L.P.