Skipped sailings still on the rise

   Two months ago, this column took a detailed look at slow steaming, the practice of adding a vessel to a loop and extending total rotation time by a full week in order to help manage capacity in a given trade (See American Shipper’s December 2014 issue, “U.S. exports sail longer,” p. 40). Specifically, the column examined the effect slow steaming has had on outbound sailing times from the United States, namely that they have increased significantly compared with inbound times since the practice became commonplace among liner carriers in 2009.
   Somewhat glossed over in the discussion, however, was slow steaming’s partner in crime, skipped sailings, which is when a vessel does not sail on its intended route and a replacement vessel is not sent in its stead. With Chinese New Year holidays, a time when many carriers choose to omit sailings, just around the corner, now seem like a good time to revisit this topic in greater detail.
   Skipped sailings, like slow steaming, came into regular use with ocean liner carriers in 2009, first on the major east-west trades, as a way to more closely manage capacity. Ocean liner carriers have long struggled with capacity management, in most cases leading to overcapacity. This excess in supply, in turn, leads to lower rates, which is appealing to shippers but potentially disastrous for carriers as many already struggle to maintain profitability, especially in the major east-west trades.
   Before slow steaming and skipped sailings, carriers’ only viable tactic for increasing or decreasing capacity in a given trade was to add or remove entire services. Because each loop potentially represents tens of thousands of TEUs per week of supply, this tactic often resulted in wild overcorrection in the market, leaving carriers in a situation that was not much better than the one they aimed to fix in the first place.
   In general, slow steaming can be used to inject relatively smaller amounts of capacity into a trade lane, while skipped sailings serve to remove capacity when demand does not meet supply levels. As the December column pointed out, the impact of slow steaming is most readily apparent when examining transit times, especially those of less popular backhaul trades like the U.S. outbound lane. Skipped sailings, on the other hand, have a much more appreciable effect on the capacity of a trade.

Source: BlueWater Reporting.

   The adjacent chart, built using data from BlueWater Reporting’s Skipped Sailings Report, shows a year-over-year comparison of the estimated capacity withdrawn via skipped sailings on a monthly basis between the China, Hong Kong and Taiwan region of Asia and North America for 2013 and 2014. BlueWater Reporting’s research team tracks all skipped sailings for services with direct region-to-region connections, including partial skips, and calculates the approximate amount of capacity lost for each missing voyage based on the average capacity of vessels operating on the service. As the chart indicates, skipped sailings are on the rise as year-over-year 2014 capacity numbers far surpass those of 2013 in all but three months—June, July and August—and even there the difference is not tremendous. In 2013, carriers used skipped sailings to withdraw an estimated 339,557 total TEUs from the China, Hong Kong and Taiwan to North America trade lane over the course of the year. BlueWater Reporting estimates that figure has grown to 549,440 TEUs in 2014, which represents an increase of nearly 62 percent. This can be attributed in part to larger vessels being deployed in the transpacific, but as with most things, the simplest explanation—that carriers are using tactics like skipped sailings and slow steaming more to regulate capacity—is likely the most accurate.
   While it may be a bit unrealistic to expect this kind of percentage increase again in 2015, it is clear that like slow steaming, skipped sailings are here to stay. As carriers continue to introduce larger vessels into the major east-west trades and consolidate services by way of mega-alliances and vessel-sharing agreements, battling overcapacity will remain particularly important if lines are to have any chance of maintaining profitability.
   Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email.

This column was published in the February 2015 issue of American Shipper.