Shipping companies plan to reduce capacity if demand falls

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diving letter:

  • Shipping companies are planning to increase empty runs to counteract weaker demand and falling volumes.
  • Maersk, Matson and Zim reported in Q3 results that they are poised to reduce capacity given lower demand. Maersk has already taken around 15% of capacity from the Pacific and Asia-Europe trade lanes, CEO Søren Skou said this month.
  • According to Chairman and CEO Matthew Cox, Matson foresees challenges for the transpacific trade route over the next two quarters as more shippers divert cargo away from the West Coast. “We expect further cuts and planned changes to meet the lower demand,” he said.

Dive insight:

Demand has dropped significantly as customers shifted cargo away from the west coast, Ali Ashraf, director of ocean products at CH Robinson, told Supply Chain Dive in an email. Ashraf expects airlines to move between 17% and 20% of their capacity to the West Coast in the fourth quarter to accommodate slower demand and lower fares.

It is common for freight forwarders to reduce capacity after the peak retail season. This year, however, the peak season took place in the summer as retailers ordered earlier to avoid delays. As a result, “we are likely to see more empty runs now than in previous years, especially compared to the last two years,” Ashraf said.

Consulting firm Sea-Intelligence said in a Nov. 11 report, “The number of empty runs on the transpacific has increased dramatically.” Airlines added 34 empty runs on the west coast of Asia-North America and 16 on the east coast of Asia-North America.

Demand is an important factor in the allocation of capacity by shipping companies.

It’s cheaper for a shipping company to use a ship at 100% capacity than it is, so run it with less. “We would never drive two ships at 50%, but always one ship at 100%, because we can simply save enormous costs,” said Rolf Habben Jansen, CEO of Hapag-Lloyd, when announcing the results for the third quarter.

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