NOL to suffer oversupply with 7.8% fleet growth

63% of these ships are for Asia-Europe trade lane where demand is dwindling.

According to Macquarie Security Research, supply growth will accelerate from 7.3% in 2012 to 7.8% in 2013. The high portion (63%) of large container ships (8,000TEUs+) for 2013 delivery is a key concern for us as these new ships are designed primarily for the key Asia-Europe trade lane, where demand is weakening.

Here's more from Macquarie Security Research:

Capacity addition in 2013 cannot be ignored: Shipping is a commodity and rates are ultimately determined by supply and demand. We believe the supply-demand balance for container shipping will deteriorate in 2013 before balancing out in 2014. With supply growth accelerating to 7.8% in 2013 from 7.3% in 2012 and a weak demand outlook, we see risks to the downside. 2013.

Cracks are appearing on supply discipline: After irrational competition pushed rates down to below cash costs in many key routes in Q4 2011, carriers have been successfully hiking rates back up to a more sustainable level. However, there are signs that supply discipline is starting to break down. According to Alphaliner, Hanjin and Evergreen have just added a new Asia-Europe loop this week despite a weak peak season, with volume to Europe declining yoy and utilisation struggling to stay above 85%. This highligts the difficulty in maintaining a united front in an over-supplied and fragmented sector, especially as operators take delivery of their ULCS.

8,000TEUs and ULCS deliveries in 2013 a key concern: ULCS and 8,000-10,000 TEU vessels will make up 63% of 2013 deliveries. We are particularly concerned about this as these new vessels have limited flexibility in terms of where they can be deployed. ULCS are designed primarily for the Asia-Europe trade lane and are too large to be deployed efficiently in the Trans- Pacific market due to port facility limitations in the US. At the same time, European demand is weakening sharply with Container Trade Statistics reporting that European import volume has fallen by 7.0% yoy in June. With austerity measures and high unemployment, we do not expect a near-term recovery in European demand.

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