With 2017 a year when rising container volumes an and some level of discipline in terms of capacity swung the demand-supply balance modestly back towards the carriers, will the lines be able to hold off expanding capacity?
Supply Chain Digest Says... |
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Doesn't look that way to SCDigest.
The analysts at Drewry recently reported that both CMA CGM and MSC have recently placed major Ultra Large Container Vessels (ULCVs) of over 18,000 TEU. Then Cosco Shipping Holdings announced plans to raise a huge $1.9 billion war chest through the issuance of new shares of stock, which will be used to part fund the purchase of 20 new ships, including 11 units over 20,000 TEU and nine in the more modest 13,800-14,500 TEU range.
Meanwhile, there are reports that Hyundai Merchant Marine (HMM) is planning to splurge on as many as 14 vessels of up to 22,000 TEU.
Interestingly, Drewry - like others before it - says it questions the the scale economies carriers believe comes from ULCVs, noting that "the cost savings at sea are countered by higher costs at port, which in theory should have reduced the industry's appetite for them."
Last year, Drewry carried out a simulation study of the operational and financial impacts on lines, terminal operators, ports and other supply chain stakeholders as vessel size increases up to and beyond 18,000 TEU.
The study found that scale economies from megaships only work for the total supply chain if terminals can increase productivity in line with increases in vessel size. As shown in the graphic from Drewry below, the combined shipping line and port total system cost savings peak at only 5% of total network costs and economies of scale diminish as vessel sizes rise beyond 18,000 TEU.
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That is because port and terminal costs rise rapidly above that level, even as liner costs decline.
That analysis – which some others in the industry do not agree with – doesn't appear to be having much of an impact on what ships carriers order.
"At present the orderbook is very top-heavy with ships of 18,000 TEU and above, accounting for very nearly 50% of all ships scheduled to be delivered by the end of 2020," Drewry notes.
There are 65 active container ships over 18,000 worldwide, and another 145 on order, for a total of 210.
And there are differences by carrier alliance group. The 2M + HMM alliance has a commanding lead in active ULCVs, 43 43 versus just 13 for the Ocean Alliance and 9 for THE Alliance.
But the Ocean Alliance is playing catch up, with 44 ULCVs on order versus 19 for 2M and just three for THE Alliance. Combining active and on order ships, 2M + HMM will have 62 ships, 57 for Ocean Alliance and just 13 for THE Alliance.
You might expect THE Alliance carriers to try to close the gap, Drewry says, but most of the carriers in the group lack the financial resources to get aggressive with ULCVs.
And there is also something of an arms race factor. "The supposed prestige of being the biggest carrier appears to be outweighing economic sense at the moment" when it comes to new ship orders, Drewry says.
A key question of course is if and when port and terminal operators will raise their charges to account for the higher costs for ULVCs they incur, which in turn would dilute the gain carriers see from the megaships.
Will the megaship orders keep coming? Will terminals raise rates to cover their higher costs? Let us know your thoughts at the Feedback section below.
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