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            august 23, 2019

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Shift to regional trade routes, cuts demand for bigger ships: DSF


Danish Ship Finance (DSF) warns in the latest edition of its biannual Shipping Market Review that "upcoming regulatory initiatives add to the uncertainties involved in running a liner business" at a time when the container shipping sector is grappling with low freight rates, rising fuel costs and overcapacity in the larger vessel segments.
"Demand in the container industry is shifting towards more regionalised trading networks, which is expected to have a negative impact on demand growth for large container vessels, while it could increase demand for the smaller vessels. Nevertheless, the supply side continues to pursue a strategy of cost leadership by ordering larger vessels," the report states.
According to the review, the current containership orderbook is split between 252 vessels smaller than 4,000 TEU and 144 ships larger than 8,000 TEU, and while "the orderbook for smaller vessels can be absorbed by scrapping of units older than 20 years, the age profile of the fleet above 8,000 TEU includes limited demolition opportunities."
It says delivery of more mega ships in coming years "will exert significant downward pressure on the midsize segment," ships with capacity of 3,000 TEU to 9,000 TEU, reported American Shipper.
Shipowners that lease vessels to liner operators "are expected to suffer the most from cascading pressure, as reemployment risk remains significant due to the growing overcapacity."
As for the requirement by the International Maritime Organisation (IMO) that ships lower sulphur content in their engine exhaust by using low-sulphur fuel or exhaust gas scrubbers by January 2020, it expects the IMO mandate to increase fuel costs considerably.
"Irrespective of which solution is chosen, we expect slow steaming to be a central element of fuel-compliance strategies, as past experience suggests that this is an efficient way of achieving lower fuel consumption and emissions rapidly, at the same time as reducing the overall effective fleet capacity," DSF said.
The DSF analysts are also concerned that if the European Commission does not extend the liner shipping consortia exemption past April 2020, shipping lines may build additional ships to maintain existing service coverage which "could trigger a new wave of newbuilding orders" and see the industry "spiral into severe overcapacity."

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