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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global Supply Chain & Logistics

From SCDigest's On-Target e-Magazine

- March 4, 2015 -

Global Supply Chain News: Big Ship Orders Keep Coming, but 25,000 TEU Ships Possible but Unlikely

Big Ship Orders Changing the Industry, Drewry Says, While Maersk CEO Says 18,000 TEU is the Sweetspot

SCDigest Editorial Staff

Ocean container carrier Evergreen recently announced it was the latest company to order a ship capable of carrying more than 18,000 TEU, signing a charter agreements with Shoei Kisen Kaisha, Ltd. for 11 Ultra Large Container Vessels (ULCVs).

The analysts at Drewry Shipping say that with this order, the total sum for ships of 18,000 TEU and above, either active or on order, has now passed the 1 million TEU mark, as shown in the graphic below.

SCDigest Says:

Since 2007, the average ship size on Asia to Europe routes has doubled to 13,000-14,000 TEU but port productivity has only increased 50%, meaning ships spend on average 18 days in port rather than 12.

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Maersk is of course us leading the way, with more than 250,000 TEU of active capacity with it Triple E ships, and another 100,000 still on the order book. MSC has also really taken the latest megaship plunge, with apparently one such ship on order and another 300,000 TEU of capacity still to come.

Ironically, one of the attractions of the latest generation of these 18,000-TEU ships is that they are better at slow steaming! Evergreen says ship's new generation G-type main engine on the ships it ordered have a longer stroke in order to sail more efficiently at lower speeds, helping to reduce fuel consumption and greenhouse gas emissions by an estimated 7 % compared with traditional main engines.

It's ironic because slow steaming effectively reduces capacity at the same time the carriers are adding capacity with these new giant ships.

It was only 7-8 years ago that the industry first started talking about "megaships" capable of carrying more than 10,000 TEU.

Drewry has previously described the latest rush for ULVCs as an "arms race," and said the new capacity is putting a lot pressure on the industry and individual carriers.

"A more apt description is probably "Follow the leader," Drewry says. "If we take a step back into the recent past, the history of orders for the latest biggest ships reveals a common trend - Maersk Line makes the first order and other carriers eventually follow. The main change is that carriers are taking less time to play catch-up," in a trend that dates back to the mid-1990s.

But these giant ships are also having a significant impact on the industry. As the ships get larger and larger, fewer and few carriers have the volumes to fill up the ships with weekly service. While the various alliances have been created/expanded in part to address that issue by combining volumes across a group of carriers, Drewry says.

"What this means is that the container industry will effectively become a two-tier arena with the haves enjoying far greater economies of scale over the have-nots," though the have-nots having some access to the giant ships through the alliances.

In fact, Drewry expects future ULCV orders to be placed according to alliance needs rather than meeting individual lines' requirements. "There is simply not enough cargo for everyone to have ULCVs," Drewry says.

(Global Supply Chain Article Continued Below)

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It's a dicey game, given the lag time between order and delivery, meaning the carriers might have wished they had made different decisions by the time the new ships arrive. For the new Evergreen order, for example, it will take some three years for the first ships to be delivered.

18,000 TEU is the Sweet Spot

At an industry conference last week, Maersk Line CEO Soren Skou said that while there are designs out there for even larger ships, up to as many as 25,000 TEU capacity, in the end such even larger ships are simply not practical.

Such large ships are of limited utility, said Skou, because they are only compatible on high volume Europe-Asia routes with very large ports at either end.

Even then, Skou said, the economics and demand situation would make it very tough. He noted, for example, that with its number one market share on container shipments from Asia to Northern Europe, Maersk moves about 55,000 TEO a week on that route.

If it deployed 25,000 TEU ships on this route it would only have enough traffic for two strings, whereas it needs to offer five or six sailings per week to remain competitive on the route, Skou said - though it seems to us that math isn't all the much better for 18,000 TEU ships.

Comparing Maersk's 18,000 TEU Triple E carriers to Boeing 747 aircraft, Skou said those planes spent decades as the world's preferred model because they offered "the optimal balance between economics and trading flexibility."

"That's where we think the 18,000 TEU ships are now," he said.

In addition to striking that balance, Skou said port productivity has not kept pace with the growth in ship size.
Since 2007, the average ship size on Asia to Europe routes has doubled to 13,000-14,000 TEU but port productivity has only increased 50%, meaning ships spend on average 18 days in port rather than 12.

Any reaction to these container shipping industry dynamics? Do you think we will ever see 25,000 TEU vessels? Let us know your thoughts at the Feedback button (email) or section (web form) below.

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