Managing overcapacity, environmental pressures and rising costs in shipping

Maersk Lanka Country Manager Biju Ravi (left) speaks at the session on “Shipping and global freight markets - What do experts say?” at the Colombo International Maritime and Logistics Conference 2024. Others from left are Talentbridge CEO Prabath Manimeldura, Colombo West International Terminal CEO Munish Kanwar, Drewry Shipping Consultants Director Shailesh Garg and moderator CMA CGM, Sri Lanka General Manager Kingsley Abeywickrama – Pix by Upul Abayasekara 

• Global throughput in 2024 to grow by 4.8% despite challenges
• South Asia to emerge as a critical growth hub in the shipping industry, with projected 5.7% annual growth rate over the next five years 
• Investments in port infrastructure and improved port efficiencies in South Asia will be crucial to meeting expanding trade demands and reducing operational costs

By Divya Thotawatte 

From supply chain bottlenecks and environmental regulations to overcapacity, the shipping sector is grappling with unprecedented challenges, forcing companies to rethink strategies and adapt to the uncertain, transformative future, some industry leaders shared recently. 

This discussion took place at the seventh edition of the Colombo International Maritime and Logistics Conference (CIMC) held on a rotational basis in South Asia among maritime nations. Supported by the Ministry of Transport, Highways, Ports and Civil Aviation and the Ministry of Foreign Affairs, the event took place from 27 to 29 November, with many international speakers and around 500 delegates taking part in this three-day conference. 

Discussing essential points from the United Nations Conference on Trade and Development (UNCTAD) maritime report, Drewry Shipping Consultants Director Shailesh Garg said, “The global GDP outlook is looking stable, but somewhat flat. The downside risk is still there. Especially the China slowdown, geopolitical scenarios, supply chain disruptions, and weather extremes are adding more complexity.” 

Despite these challenges, the global throughput in 2024 was likely to grow to be 4.8%. While the first half of the year had been very strong with around 6% throughput, continuing from the momentum of the last quarter of 2023, this momentum had slowed in the second half. 

Overcapacity issues 

A significant challenge for growth was overcapacity that will affect the industry more in the future years. With a surge of new ships from the pandemic-era orders entering the market, the shipping industry was bracing for mounting challenges from overcapacity and plummeting freight rates. Yet, “despite concerns of overcapacity, ship-owners are aggressively ordering new vessels. This isn’t just about market competition, it’s about ensuring these vessels are ready for a decarbonised future,” Garg noted. 

He explained that the surge in new vessel orders reflected a proactive shift towards sustainability. Many of these new vessels were being designed with dual-fuel or alternative fuel capabilities to comply with stricter environmental regulations. However, this ambitious drive had not completely replaced older vessels; “ship-owners are holding onto older fleets as a hedge against market uncertainty.” 

According to Maersk Lanka Country Manager Biju Ravi, the capacity increase will not be uniform and will depend on how ship-owners managed the fleets. It depended on “how many ships are going to get scrapped.”

He also mentioned the possibility of positioning ships in emerging markets, which may alter how and where they are deployed; “It depends on the ship-owners, on how they want to operate, or how they want to position these ships into merging smaller markets.” 

One of the key challenges for the shipping companies in the coming years will be how to manage fleet utilisation efficiently, Ravi added, stressing the need for companies to be agile and dynamic, adapting their operations using advanced technologies to predict and adjust fleet deployment. “We need to really look at predictive forecasts using advanced technologies today which we have like IoT or AI, and how agile you can be to move the ships strictly around to different port pairs or destinations.” 

Reshaped routes and strategic moves

 Garg highlighted that the Red Sea Crisis and weather extremes like the Panama Canal disruptions were also compelling ship-owners to adapt swiftly. These factors have diverted major shipping routes and sustained the demand for additional vessel capacity. However, “these disruptions are not short-term hiccups. They’re reshaping the way we think about logistics and fleet management, potentially driving up freight rates even as fleet sizes expand,” he explained. 

He said that to mitigate overcapacity, some ship owners were turning to idling strategies. This approach had been effective in stabilising rates in the past, and was being considered again as fleets grew. 

Ship-owners were also aggressively securing building spots for new vessels, Garg noted. This trend and strategy was due to anticipated higher costs and reduced availability in coming years, prompting ship-owners to place orders to stay ahead of market dynamics. “This is a competitive game. Ship-owners are not just planning for today, they’re preparing for a future where sustainability and capacity are non-negotiable.”

The future of South Asia 

With all these transformations taking place in the global shipping industry, South Asia was emerging as a critical growth hub. According to Garg, with a projected compound annual growth rate of 5.7% over the next five years, the regions expanding trade volumes were creating significant opportunities for ship-owners and logistics providers. 

“South Asia’s growth trajectory is remarkable. It’s a region where investments in port infrastructure and logistics are urgently needed to keep pace with trade demands,” Garg noted. 

Talentbridge CEO Prabath Manimeldura also added that the region’s port sector would play a critical role in keeping shipping costs stable. He further emphasised that, with South Asia leading the way, there is an expected reduction in operational costs as port efficiencies improve in the next few years. 

“If you look at the possibilities of newcomers coming into the shipping industry, what we saw was a consolidation in the industry. This large number of ship owners became a smaller number of ship owners. There are some talks that some Asian superpower would eventually invest in ships, introducing a new shipping line or company,” Manimeldura noted. 

Enhancing port efficiency 

During the discussion, Colombo West International Terminal CEO Munish Kanwar brought attention to the importance of port operations in addressing the shipping industry’s challenges. He highlighted the need for ports like Colombo to focus on reducing inefficiencies and increasing productivity. 

Kanwar explained that operational and non-operational times during a vessel’s port stay were key areas for improvement. He said, “Worldwide, the operational time is around 60%, and the non-operational time is around 40%. This 40% is something manageable, which can be reduced.” 

Sharing strategies to enhance efficiency, he also stressed on the necessity of standardising operations, adopting automation, and improving training facilities for staff. Managing what cannot be measured could be impossible, and therefore, deploying a strategy which focused on tracking, evaluating and measuring all processes would increase efficiency, Kanwar advised. 

Additionally, explaining that reducing a vessel’s time in port had broader implications for costs and environmental impact, he said, “more time at sea would reduce your fuel consumption; you can reduce the speed and emissions.”