Overcapacity in the container shipping market is nothing new. When supply outstrips demand, shipping lines have several levers they will pull to stabilise freight rate declines, and maintain better profitability.
With total teu capacity nearing 32 million, it takes a lot of demand to keep the world’s fleet employed. Often, during a global economic downturn, there is insufficient demand for shipping lines.
In this article, we examine the key tactics used by carriers to manage excess capacity, looking at how these strategies work and real-world examples of their implementation.
This is often the first technique a carrier uses to manage an overcapacity situation on a particular trade lane. Reconfiguring services involves adjusting shipping routes, schedules, service frequencies, and vessel sizes to better align with current demand and optimise fleet usage.
Carriers analyse trade patterns, cargo volumes, and market demands to identify opportunities for consolidation or adjustment. This may include merging multiple routes into a single service, reducing the frequency of sailings on underutilised routes, or altering port rotations to maximise efficiency.
The major shipping lines generally announce their services annually, reacting to market trends. However, they constantly tweak particular routes and the size of vessels on particular routes in response to booking demand.
However, when demand is insufficient worldwide and there are too many vessels, carriers will be forced to try other strategies.
Blank sailings refer to scheduled sailings that are cancelled or removed from service to reduce available capacity on specific trade lanes. This is one of the most immediate and commonly used strategies to artificially tighten supply and support rates.
When demand softens, carriers announce blank sailings weeks in advance, allowing them to avoid running vessels with low utilisation levels. A carrier can do this individually or coordinate it within an alliance.
There are countless examples of this practice, it happens regularly on a small scale as the shipping line schedulers react to demand fluctuations. One large example, at the start of March 2020 and the disruption caused by the COVID-19 pandemic, 77 blank sailings were announced on global shipping routes. The result was a sharp reduction in available space.
GRIs are immediate rate hikes implemented by carriers to raise freight prices. They can be used when demand is surging or, as this article discusses, in response to weak market conditions.
Announced periodically (often on a monthly or quarterly basis), GRIs attempt to arrest declines in rates by imposing a blanket freight all kinds rate increase across certain trade lanes.
However, their success can be limited in times of weak demand. Carriers will immediately begin undercutting the increase to secure the limited demand for containers.
In 2023, shipping lines attempted multiple GRIs across the key trade lanes in response to a sharp post-pandemic demand slowdown. Despite several attempts, weak demand and competitive undercutting made these rate hikes largely ineffective.
The carriers' unprofitable rate levels were only rescued when the Red Sea diversion struck, causing a 3000 nautical mile diversion for ships on the Asia-Europe route. This event effectively removed a huge percentage of the global supply of space from the market.
Slow steaming involves reducing vessel speeds to consume less fuel and stretch transit times, effectively keeping capacity tied up longer at sea.
By operating at reduced speeds, carriers lower fuel consumption (a significant cost-saving benefit), while also ensuring fewer sailings are available over a given period. This absorbs excess capacity without needing to physically remove vessels from service.
Lower speeds and fuel consumption are also easy ways to make vessels more environmentally friendly and hit emissions targets, making this one of the quickest and cheapest wins for carriers on sustainability. Therefore, shipping lines often cite environmental reasons for slowing their vessels down, which conveniently removes capacity from the market.
“You can find all kinds of complicated technological tricks to make your ship more efficient, to make it greener. But the easiest and the lowest hanging fruit is always to go just that little bit slower.” Jan Tiedemann, Shipping Analyst at Alphaline
Again, this is a very dynamic strategy that shipping lines use regularly. One notable example is in 2015, when Maersk highlighted slow steaming and blank sailings in its annual report (page 52). At the time, the biggest carrier stated that this was to minimise the impact of the low freight rate market on its profitability.
Idling, or laying up vessels, involves temporarily withdrawing ships from active service when market conditions are unfavourable.
This is not a favoured strategy from the carriers, as there are still costs associated with idling a vessel while the asset sits moored and does not make any money. Mooring fees, asset depreciation, and mechanical deterioration are just some of the fees associated with idling.
Ships are anchored at designated lay-up locations, which are typically sheltered areas with minimal maritime traffic. There are two types of idling:
In October 2023, global idle tonnage hit 4.3% of the global fleet at the time, 1.18 million teu, as the carriers reacted to the post-pandemic demand slump.
Scrapping, or ship recycling, involves dismantling older or less efficient vessels to remove excess capacity from the market. This process occurs naturally as fleets are refreshed, but carriers can do more or less of it depending on market conditions.
Carriers evaluate their fleets to identify ships nearing the end of their operational life, typically due to age, inefficiency, or non-compliance with current environmental standards. These vessels are sold to shipbreaking yards, where they are dismantled and materials such as steel recycled.
When GRIs fail, carriers can sometimes introduce ancillary charges to maintain revenue and improve the balance sheet.
These can take various forms, but here are just 3 of the most common examples:
We’re also increasingly seeing environmentally related ancillary charges added to freight rates. Again, in 2023, with the incoming EU ETS regulation, carriers began charging these fees on their shipments into the European Union as they battled the demand downturn.
There are other strategies the shipping lines will use. These are less common in response to overcapacity, mostly because of the costs involved or because they represent a broader scale carrier strategy.
Shipping lines have many options for managing overcapacity, but these tools can only go so far If demand remains weak, carriers face an ongoing challenge in balancing supply and demand.
With the global container fleet now exceeding 31 million teu, if cargo volumes are insufficient, even the most aggressive capacity management strategies will struggle to prevent freight rates from falling below profitable levels.
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