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Price of container shipping has skyrocketed due to high demand and the supply of ships being fairly limited, even more limited when the average trip time of a b

Price of container shipping has skyrocketed due to high demand and the supply of ships being fairly limited, even more limited when the average trip time of a boat increases. One question I've been thinking about is whether the ocean freight companies will respond by increasing supply of ships. These ocean shipping companies didn't actually make a lot of money prior to the pandemic: back when China-USWest prices were under $3k a container, their margins were actually kind of thin. So if we've had all this consolidation, and there are now three alliances that handle most of the freight, what is the incentive to increase supply? Just a 30% increase in ship capacity would likely crater profits. Is the industry going to respond with building more ships, or, like OPEC, will they be able to coordinate to constrain supply so that long-term rates settle down in the $6-8k range versus the <$3k that existed previously? If they are able to operate as a cartel, that will have major, long-term consequences for the dynamics of geographic manufacturing and supply chains. If they can't, then the pandemic will be a multi-year blip and we'll go back to hallowing out manufacturing and sending it to Asia.

techdragon 5y ago
They will not increase the supply of ships because of the lead time involved. If they could add one tomorrow, sure.. but they can’t. Bringing a ship online takes months, to years depending on how “off the plan” the design is. It’s not going to fit into their modelling or be relevant to the current global situation which from what I can tell is mainly constrained by containers not container ships. Repurposing existing container capable ships is valuable but beyond that it’s not helpful due to the rapidly increasing volatility of the available container supply. If there aren’t enough containers there’s no point adding ships that will need to be deprecated over a decade or more. Ergo… no new ships.
acrooks 5y ago
I work with a number of container shipping companies. Almost all have kicked off new-build projects since the start of the pandemic, after several years of tight margins, budget cuts, bankruptcies, and asset sales. The industry is in a real peak right now - some ocean shipping companies paid a 100% bonus in 2021. It's really difficult for the industry to target the right spot of the supply/demand curve. A new-build project takes several years they need to commit in advance to the shipyards how many vessels will be built as part of a new class. Meanwhile, many other companies are simultaneously building vessels. And it's impossible to predict events like the port congestion in LA that drastically reduced supply for a period of time. And it's difficult to predict macroeconomic changes in demand. And a vessel might cost a hundred million dollars, so the operator isn't going to let it sit around and do nothing - they're going to put it to work and make as much money as they can.
- mediaman 5y ago
  Interesting. If there are a lot of new vessels built, then they could be facing poor margins again in a few years after supply comes online. It's a lot like the airline industry. Once that vessel is built, the cost of each incremental container is almost nothing.

techdragon 5y ago

They will not increase the supply of ships because of the lead time involved. If they could add one tomorrow, sure.. but they can’t. Bringing a ship online takes months, to years depending on how “off the plan” the design is. It’s not going to fit into their modelling or be relevant to the current global situation which from what I can tell is mainly constrained by containers not container ships. Repurposing existing container capable ships is valuable but beyond that it’s not helpful due to the rapidly increasing volatility of the available container supply. If there aren’t enough containers there’s no point adding ships that will need to be deprecated over a decade or more. Ergo… no new ships.

acrooks 5y ago

I work with a number of container shipping companies. Almost all have kicked off new-build projects since the start of the pandemic, after several years of tight margins, budget cuts, bankruptcies, and asset sales. The industry is in a real peak right now - some ocean shipping companies paid a 100% bonus in 2021. It's really difficult for the industry to target the right spot of the supply/demand curve. A new-build project takes several years they need to commit in advance to the shipyards how many vessels will be built as part of a new class. Meanwhile, many other companies are simultaneously building vessels. And it's impossible to predict events like the port congestion in LA that drastically reduced supply for a period of time. And it's difficult to predict macroeconomic changes in demand. And a vessel might cost a hundred million dollars, so the operator isn't going to let it sit around and do nothing - they're going to put it to work and make as much money as they can.

mediaman 5y ago
Interesting. If there are a lot of new vessels built, then they could be facing poor margins again in a few years after supply comes online. It's a lot like the airline industry. Once that vessel is built, the cost of each incremental container is almost nothing.