24,000 TEU ships for Asia-Europe trade
Ships up to 24,000 TEU capacity could soon be plying the Asia-Europe container trades, putting further pressure on rates, according to the latest analyst reports. Asia-Europe spot rates are currently down a third compared to a year earlier after precipitous declines in recent weeks as supply continues to overwhelm demand. Yet SeaIntel now forecasts that the addition of new 10,000+ TEU capacity ships next year could boost capacity by as much as 9.5% unless lines cancel services or increase the use of blank sailings as a tool to control supply and even larger ships could soon be on the way as shipping executives look to new orders to help reduce fuel and slots costs to remain competitive despite the existing excess of supply.
Liner representatives at a forum held by classification society DNV GL this week said demand for ever bigger container vessels continued to be strong. Jost Bergmann, Business Director of the classification society, said that it would soon be possible to build ultra large container ships with a capacity of 24,000 TEU. Based on a current 19,000 TEU vessel design, these ships could be one hold longer, two rows wider and one hold tier higher. Due to stability factors and steel thickness requirements, it is easier to increase the beam than to increase the length, said a statement by DNV GL. However, Bergmann said the deployment of ultra large wide beam vessels would be constrained by port and seaways limitations, such as crane outreach and drafts. For example, the Suez Canal is limited by draft while bridges in ports such as Hong Kong, Hamburg and Osaka would limit vessel heights.
East-West ship utilisation rises
Utilisation rates on the main East-West container trades showed major year-on-year gains in the third quarter, according to the latest research from SeaIntel. The analyst said Asia-Europe trade lane utilisation increased to 80.1% in the 3rd quarter compared to 77.6% in Q3 of 2013, while on the Transpacific trade utilisation rose 7.3% points compared to a year earlier to stand at 83.2%.
It has been found that the utilisation level on the Asia-Mediterranean trade has been relatively high in the last two quarters and well above the level we saw last year, said Alan Murphy, COO and Partner in SeaIntel. In Q3 of 2014 the utilisation level was 88.4%, which makes it the trade lane with the highest utilisation of the three that has been examined.
Hapag-Llloyd and CSAV merger complete
Hapag-Lloyd (HL) and the Chilean Compania Sud Americana de Vapores (CSAV) are joining forces by merging CSAV’s container business activities into HL. With this move, HL becomes the fourth largest liner shipping company in the world. The corresponding contracts for the merger of the two companies were already signed in Hamburg in April. With approval from all the relevant global authorities now in place, all condition precedents have been fulfilled.
The merger of Hapag-Lloyd AG with the container business activities of the Chilean shipping company, founded in Valparaiso in 1872, is expected to result in many synergies. Annual savings of at least $ 300 million are anticipated as a result of network optimisation, productivity improvements and cost reductions. The merged company will have around 200 vessels (with a capacity of approximately one million TEU) and will transport around 7.5 million TEU every year. It will set up its fourth regional headquarter in Valparaiso (Chile).
With revenue of around $ 12 billion, the combined entity joins the elite group of international shipping companies. In addition to integrating CSAV’s container business into Hapag-Lloyd, there are also plans to strengthen the company by raising capital of EUR 370 million by 31 December 2014, in which CSAV will take a share of EUR 259 million and Kuhne Maritime EUR 11 million. The ownership structure of Hapag-Lloyd AG will therefore change as follows: CSAV will become Hapag-Lloyd’s biggest shareholder with 34% after the cash capital increase. The other shareholders are HGV (23.2%), Kuhne Maritime (20.8%), TUI (13.9%), Signal Iduna (3.3%), HSH Nordbank (1.8%), M.M. Warburg (1.8%) and Hanse Merkur (1.1%).
2 m under Chinese scrutiny
According to the Vice President of the China Ship-owners’ Association (CSA), the 2M vessel sharing agreement of Maersk Line and MSC may face additional scrutiny by the Chinese regulators if they do not reduce their capacity shares on trade routes with China to 30% maximum. It seems to be unclear whether this People’s Republic of China’s international Marine Regulation rule considers individual lanes or combined coverage. In September, the duo’s then capacity share of the Europe-Far East trade was 36%; that of all North American (West and East Coast) routes 15% and combined 27%.
Meanwhile, the US Federal Maritime Commission’s (FMC) former (2009/13) Chairman and current Commissioner (one of the five) has called for a global regulatory approach of container shipping alliances. In his opinion, the current fragmented system of many countries having their own regulatory rules and others having little or nothing of the kind is no match against the growing powers of ever larger worldwide operating shipping companies.
Slow steaming set to stay despite lower bunker price
In the container sector, slow steaming has fulfilled the multiple functions of bringing down very high fuel costs, helping to manage capacity and reduce emissions. Lars Mikael Jensen, Chief Executive Asia Pacific Region for Maersk, explained: “We designed the network on the basis of slow steaming, if we were to make any change it needs to be a low bunker price for some consistent period of time. But slow steaming is also an important part of the industry and our customers for delivering on the CO2 agenda, he said. Added to this modern vessels in container shipping are designed with slow steaming in mind.”
Looking to the dry bulk sector, Nicholas Fisher, CEO of Masterbulk, said: “In terms of bunker prices, for an owner like Masterbulk - not a lot this is a charterer’s cost not an Opex cost. But of course any drop in the price of petroleum based products has an impact on costs. For owners like us, lube oil is the most obvious area of savings.” As to whether slow steaming would be reduced he said that while there was a case for it to do so it was unlikely to happen. “If this price level continues it may well reduce the need for slow steaming, but that in turn increases the other Opex consumables (lube oil) and also may increase available vessel capacity in the market and depress rates even more,” Fisher explained. “So there may be a business case to continue slow steaming to keep rates up, enjoy lower fuel and lube costs. Besides, cargo won’t pay for shorter transit times. I don’t think we will see a decrease in slow steaming.”
Meanwhile in the large tanker sector brokers Poten made the comparison of a 2007 built VLCC against a 2013 eco-type vessel and found that with the market moving upwards as it is at the moment there could be a reason to reduce slow steaming. “Earlier in the year, when the rates were lower, slow steaming made more sense as the additional revenue that could be earned during the additional 3.9 ballasting days was lower than the fuel savings.” At current market rates and lower bunker prices, this situation has shifted. At least for the vessel and voyage combination in our example increasing the ballast speed could prove to be beneficial.
IMO approves container weight regulation
The International Maritime Organisation (IMO) has announced plans to adopt new Safety of Life at Sea (SOLAS) regulations by 1 July 2015 along with a new Polar Code to govern the operation of ships passing through Arctic or Antarctic waters. The SOLAS amendments include new rules for weighing containers and for inspection of bulk carriers and oil tankers. The amendment states that authorities will “required mandatory verification of the gross mass of containers, either by weighing the packed container or weighing all packages and cargo items, using a certified method approved by the competent authority of the State in which packing of the container was completed.”
The IMO’s Maritime Safety Committee (MSC) approved the amendments during the 94th session committee meeting in London where adoption of the Polar Code was also agreed. The Polar code is intended to cover the full range of shipping related matters relevant to navigation in waters surrounding the two poles – ship design, construction and equipment operational and training concerns, search and rescue and equally important the protection of the unique environment and eco-systems of the polar regions.
[The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).]