This story originally published on Fairplay.IHS.com.

New vessel orders are threatening to blight the container shipping sector whose growth remains subdued, meaning there is little hope of the trades coming into balance any time soon.

The causes of this affliction are two-fold with global macro-economic growth sluggish and the persistent ordering of vessels in an effort by operators to realise economies of scale on the one hand, and taking advantage of low prices from the yards making newbuildings an attractive option.

Ten years ago the owners' mantra was that they did not build ships for the short-term, but that they were looking at a 25-year period for their investment. That strategy and the belief that trade growth would remain at high levels, up to 15% on some trade lanes, convinced owners to keep ordering. A change of strategy has yet to be seen and in the years since the banking crisis in 2008 container capacity growth has continued to be a feature.

In February's container ships forecast, from IHS Maritime & Trade, the figures revealed the problem, "Deliveries seemed to be relatively tame in the first month of this year; however, this should not lead us to the expectation that we are anywhere close to rebalancing the container market, as there is still a large number of vessels waiting to join the fleets in the next couple of years, particularly among the larger sectors."

According to the report some 16% of the current fleet is on order, 3.6 million teu, and of that number 2.6 million teu are orders for vessels of more than 10,000 teu.

"This means that what is considered as the ULCS fleet has about 50% of current capacity on order. About 1.3 million teu, or about half of total capacity on order, is scheduled for delivery in 2017. However, we would not expect to see all the units delivered by the end of the year."

A container ship broker does, however, point out that these orders were placed two to three years ago and that the liner operators "expected that growth would be above 5%, but they now know that economic growth will be between three and 4%," he said. The broker added, "There has been a raft of newbuilding spikes and that comes just when you see the light at the end of the tunnel the liner companies order more vessels."

Independent owners have virtually stopped ordering some time ago whereas the liner companies have been seduced by the low yard prices, still not low enough according to some, and the need to cut costs through economies of scale.

Cost cutting is now imperative as most of the cargoes that can be containerised have now been transferred so that growth through transfer of cargo from other vessel types, such as bulk carrier and reefer ships is now limited. From the 1960s, at the birth of container shipping, through to the turn of the century container cargo growth was taken for granted as year by year new cargoes were containerised.

During the first seven to eight years of the new millennium that trend continued, but by then almost all of the conversions to containerisation had been completed and the new fuel of containerised growth was consumer spending

However, according to the IHS Markit report, "One of the most important developments for container shipping in this past decade has been the accelerated level of globalisation and trade made possible by the remarkable flexibility of container shipping to respond to expansion and structural changes to global trade."

In addition, China's accession to the World Trade Organisation and massive investment into China and other developing countries ensured growth in the pre-crisis period remained strong. After 2008 a change has come about and growth levels are considerably lower, in China the expectation is that growth will be 6% this year, less than half the growth rate of the pre-crisis era.

As reported in the container market report, "The first sharp growth [in China] was recorded in 2004, when teu trade grew by almost 15% year on year." The trade continued its growth until the second half of 2008."

With container trade now set to achieve between 3 and 5% increases over the coming five years, a steady if not scintillating rate of development, and with capacity still outpacing economic growth particularly in the next two years, there will be an "adverse effect on freight rates returns," says the IHS Markit report.

As the fundamentals of the supply and demand equation seem to be taking their time in returning to equilibrium some help from the political arena to soften the trade imbalance would be hoped for, but with protectionism in the air and regional conflict a possibility in East Asia and the Middle East the outlook here remains uncertain also.

Perhaps the best bet for the container lines to return to profit will be the through the development of technology, that is new more efficient designs, and the use of electronic gadgetry and related software such as Blockchain to optimise supply chains and to significantly reduce cost.

As a consequence the container report concludes, "The changes above will not bring any fundamental shift in trading routes and cargo flow. They will instead create an upward pressure towards introducing larger and more economical ships and sharing agreements between companies as economies of scale and savings on operating costs would again become the major objective and competitive advantage."

And finally the report notes that, "Although increased volumes of trade are supposed to put upward pressure on rates and bring better returns to owners and operators it remains to be seen if overcapacity will remain a persistent issue in this trade."