Maritime market updates

Monday, 19 November 2012 00:00 -     - {{hitsCtrl.values.hits}}

Ultimate container carriers – can ships get bigger?

When Dutch Professor Nikko Wijnolst proposed in 1999 that 18,000 Teu Malacca Max, which was more a vision would be the ultimate container carrier, many shipping experts felt that it would never see the light of the day. Between 2007 up to 2009 notwithstanding the turbulent economic environment, orders were placed for around 200 very large container ships with a capacity of over 10,000 Teus, which was referred to as ‘Ultra Large Container Ships’. This was in reaction to Maersk Line launching a 15,600 Teu ‘Maersk Emma’ in 2004, the first of a series of eight.

When this vessel was launched Maersk Line declared capacity was only 11,000 Teus and it was only in 2011 that the carrier revealed that ‘Emma’ and the other vessels were capable of carrying up to 15,000 Teus. Maersk Line in February and June 2011 challenged the 1999 design of Professor Wijnolst by ordering 2x10 mastodons of 18,300 Teu each at US$ 190 million a vessel. These vessels which have been named Tripe E which signals ‘Economy of Scale, Energy Efficient, Environmentally improved’ will start coming in to operation from June 2013 onwards and all 20 vessels will be operational by mid 2015. Will these ships be the ‘ultimate container carriers’?

With ships cost per container falling due to ship size increasing, argumentatively scale of ships will keep growing.

The question that is being posed is will economies of scale run out at a certain point. If we take a building, due to wind force consideration design becomes complex and costly with the rise in height. Some studies have revealed that when a building gets taller construction cost per square metre rises. Having said that, in the Shipping industry there is already a design in place for a 22,000 Teu vessel (STX Design).

The challenge facing the industry is that in order to benefit from economies of scale, ships need to have maximum utilisation. To have a ‘Larger Port Call size,’ the container market needs to grow. As stated in DynaLiners Trades Review, “So long as the market does not grow and as long as the capability of feeder ports doesn’t change, there is no inducement for the support fleet to grow with the size of the mainline ships.”

Revised growth forecast for Asia/Europe and Transpacific

Clarkson is forecasting a 0.49% contracting in throughput for Asia /Europe trade to 20.3 million Teus for 2012, down from 20.4 million Teus handled in 2011. It has also revised the Transpacific growth forecast to 2.89% to 21.3 million Teus for 2012. These revisions do not pose a surprise as rates have plummeted right through the third quarter.

CKYH Alliance to reduce seven Asia Med sailings

CKYH Alliance comprising of COSCO, K Line, Yang Ming and Hanjin are expected to reduce around 21% of their total capacity on the Asia – Mediterranean trade shortly due to falling demand. The container lifting from Asia to Western Mediterranean and North African ports totaling to 599,340 Teus in the third quarter is 16.2% lower than an year ago level.

A ‘K’ Line official said: “We are adjusting capacity in line with lower winter demand. We may arrange similar cuts again after the Lunar New year in mid February when demand usually softens.” Industry believes that capacity cuts announced by shipping lines, such as, Maersk Line, Evergreen and now CKYH are with a view to restore rates with many shipping lines already increasing rates from East Asia to Mediterranean and North Europe by at least US$ 500 per teu from November and December.

Capacity cuts help to revive freight rates but will it hold?

At last with significant removal of shipboard capacity Shipping lines have managed to implement rate increases successfully with effect from November. As announced by Shanghai Container Freight Index (SCFI), the all inclusive rate per teu from Shanghai to North Europe increased from US$ 1074 to US$ 1315 per teu an increase of 22.4%, from Shanghai to the Mediterranean the increase was more than 18% from US$ 1076 to US$ 1273 per teu.

However, the indications are that since the increase shipping lines have lost 25% in the space of a week. With proposed increases to Mediterranean failing, it will be difficult to maintain North Europe increases.

Record oversupply of vessels in 2013

As reported by London based Shipbroker Bremer Seacope, container ship deliveries will reach a record high of 1.7 million teus of container shipboard capacity in 2013 which will surpass the previous high of 1.5 million teus in 2008. By the end of this year the fully cellular ships delivery will be 1.3 million teus which again is not that far from to the 2008 record.

The report also indicates that the 10,000 teu fleet of ships ‘Ultra Large Container Ships’ will expand to a total of 48 vessels with combined capacity of 650,000 Teus by the end of this year.

Scrapping of ships gathers pace

It appears that increase growth in ship capacity has been counted with the demolition of cellular container vessels. Scrapping of vessels remained fairly high in the first two quarters of 2012 having exceeded 200,000 teus and is expected by the end of this year to reach the mark of 300,000 teus. So far the highest year of scrapping was in 2009 when 370,000 teus of shipboard capacity was demolished.

Maersk Line records black

Maersk Line in the third quarter of this year has achieved a profit of US$ 500 million compared to a loss of almost US$ 300 million in the same period in 2011. This improvement will enable Maersk Line to offset third quarter reduction in profits declared in other sectors within the Group.

The Maersk Group reported revenue of US$ 14.6 billion for the period as against US$ 15.3 billion in 2011, which is a 5% year on year decline. However, the Group’s pretax profit was up by 9% which is almost US$ 2 billion compared to US$ 1.8 billion a year ago.

In a statement Maersk Line said that its head haul volumes from Asia/Europe sector had fallen by 15% while average unit costs dropped by 6%, primarily due decreased bunker consumption per Feu and its network optimisation.

APM Terminals, the Groups’ Port Operation division witnessed a profit drop to US$ 160 million from US$ 173 million year on year, though volumes increased by 4% to 9 million Teu.

MSC with a US$ 600 Per Teu Asia – Europe rate hike

Mediterranean Shipping Co. (MSC) has announced a General Rate increase (GRI) of US$ 600 per Teu effective 15 December 2012 on all West bound cargo from Asia to Europe. This follows a recent “83% success with 1 November GRIs on this key trade” said Seaintel Maritime Intelligence.

Proposed increase is on the backdrop of shipping lines facing dismal Europe demand, particularly from Mediterranean. The poor outlook for European consumer demand is unlikely to improve in the near future. Greek Parliament recently passed a US$ 17.3 billion austerity bill and unemployment is at present running at a shocking 25%.

In October euro zone consumer and business confidence fell for the fourth straight month weakening significantly in France, Germany, Finland and Austria. EC is expecting euro zone demand to be weak in 2013 which is in addition to headline euro zone unemployment expected to rise from 11.6% to 12% next year.

Global shippers welcome New Zealand inquiry into price fixing

The decision by the authorities in New Zealand to initiate an inquiry in to the exemption of price fixing of international shipping services has been welcomed by the Global Shippers Forum which seeks to extend the European ban on Shipping Conferences in 2008 and more stringent US regulations in 2010.

The proposed withdrawal of antitrust immunity in the shipping industry was consequent to a report submitted by New Zealand Productivity Commission to Parliament in April. Shippers argue that adaption of normal competition regime will carry sufficient safeguards to provide maximum capacity and frequency to and from New Zealand.

Somali piracy decline

Will the reduction in Somali piracy result in a drop in resources contribution by some nations? According to a Nato Spokesman: “We have seen remarkably low activity and this is a concern for national contribution. If it continues at this level, it is fair to think that some nations will decide their money is better spent elsewhere and won’t contribute resources.”

Whilst Nato’s role was purely anti piracy and at one time contributed between two to eight ships, Combined Maritime Forces (CMF) provided two to six vessels, EU Navfor’s support fluctuated between two to nine ships.

Pirates moving from using commercial vessels to fishing dhows had prompted Nato to work on a dhow registry and issue guidelines to dhows. As reported Nato’s aim for the future are to continue patrols, disrupt pirate action groups and destroy their capability.

(The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK) and a University of Oxford Business Alumni. He can be reached via email