Monday, 5 May 2014 00:00
Now 24,000 TEU container ships
Dr. Klein, the former Head of Germanischer Lloyd and one of the first in the world to predict the arrival of 18,000 TEU ships, anticipates that container ships will eventually exceed 400m in length and will go beyond 19,000 TEU. “There is no technical limitation,” he said. But first, the ports need to be ready to handle the next generation of container ships.
Although ship designers have been talking about vessels with a capacity up to 24,000 TEU, indications are that shipping lines were not looking beyond 19,000 TEU vessels as at present. At the moment, the biggest ships in the pipeline are for China shipping, with CSCL Globe due for delivery in November reported to have a nominal capacity of 18,270 TEU.
CMA CGM has recently upgraded ships on order, which will now be around 17,800 TEU. What they all have in common is their length, just under 400m, which is regarded as the practical maximum for now, according to Marcus Ihms, container ship expert.
Beam is another potential limiting factor, with cranes needed to handle broader ships and the greater rolling forces of a very wide vessel making it inadvisable to load cargo on deck. Where designers can obtain additional capacity within those limitations is through the siting of the engine room or accommodation block.
The slot costs of say, a 21,000 TEU ship are as much as 10% lower than for a 14,000 TEU vessel. An 18,000 TEU ship would still have cheaper slot costs than a 14,000 TEU vessel even at 90% rather than 100% utilisation.
Remote-controlled ships: Can they be the future?
Visualise a cargo ship with no crew and no bridge, operated remotely by a captain from a cabin on dry land. It could happen within a decade, believes Oskar Levander, Vice President of Innovation in Marine Engineering and Technology at Rolls-Royce Holdings LLC. “The technology solutions aren’t in place yet, but all the pieces are there,” he said. “It is a matter of developing the technology and putting it together into systems.”
Rolls-Royce has been working on designs for remote-controlled cargo vessels as a first step toward overcoming widespread industry scepticism. The London based manufacturer of engines and turbines has built a prototype of a land based ship’s bridge at Alesund, Norway, where Levander works. Separately, the European Union is funding a $ 4.8 million research project to study the feasibility of a ship operating autonomously until it nears port and a crew is taken aboard.
The project, Maritime Unmanned Navigation through Intelligence in Networks, has the acronym MUNIN. In Nordic mythology, Munin was the raven sent out daily to fly around the world to gather information or the God Odin. For now though, remote-controlled cargo ships remain for beyond the horizon, unmanned ships may be technically possible, but they don’t fit a legal and regulatory environment that’s taken centuries to develop and would take years to change.
There’s a long list of obstacles: Minimum crew requirements are set by international conventions. Without changes to International Maritime Organization rules, unmanned ships would be considered unseaworthy and ineligible for insurance. Many shippers would be reluctant to entrust their cargo to a crewless vessel. Labour oppositions would be intense. There are also questions about costs, reliability, safety, security and liability.
Rate push in face
of ‘glum’ outlook
Effective 8 May, the German carrier Hapag Lloyd aims to raise rates on the Asia-North Europe and Asia-Mediterranean trades by $ 525 per 20 foot container and $ 1,050 per 40 foot container. “The market outlook remains quite glum,” as per SeaIntel’s weekend report. “Carriers generally managed to pull 2013 results above those of 2012, but over capacity, freight rate volatility and service disruptions will remain the driving forces of 2014,” the market intelligence company said.
Another 30 container ships of between 13,300 and 19,000 TEUs will be delivered this year as carriers try to reduce unit costs on the Asia-Europe trade. While GRIs achieving 75% of the intended increase are regarded as acceptable by the carriers, industry observers say even that will be difficult to sustain with the glut of surplus capacity coming online.
In a recent report, Drewry said the industry down cycle was being exacerbated by the constant delivery of new ships and cascading was hurting the balance of other trade lanes. The report said a worsening supply-demand imbalance, combined with the appetite to protect market share, represented a toxic mix for profitability. As reported in the Shanghai Container Freight Index (SCFI) the average freight rate from 2012 to 2013 declined from $ 1,248 to $ 1,081 per 20 foot container. While the rates have improved on Asia-North Europe in the last couple of weeks, this is expected to be short lived, the market researcher said.
When broken down into P&L per 20 foot container, the numbers are uninspiring. In 2013, CSAV lost $ 195 per transported container whilst Zim lost $ 151 per transported box. Even the carriers that managed to transport boxes at a profit barely made it into positive territory, with “K” Line earning $ 9 and OOCL $ 11 per container. The top scorer in 2013 was Maersk Line, with earnings of $ 89 per transported 20 foot container.
Large shipping lines outperforming smaller competitors
The 2013 financial reporting season for container lines ended for many carriers in a sea of red ink as high bunker prices and weak freight rates combined to drag down profits. But some of the biggest carriers, particularly Maersk Line and CMA CGM are clearly bucking that trend, indicating that carriers operating large ships within extensive service networks are at a clear financial advantage. The results thus show that some carriers are better prepared than others to withstand the pressures of over capacity that is expected to remain through at least 2015.
“Maersk Line and CMA CGM, who are both members of the P3 Network together with MSC, enjoy significant advantages compared with the other carriers,” Alphaliner wrote in its weekly newsletter. “On their main line haul routes, the two carriers were also able to deploy the largest ships on their respective trades, allowing them to enjoy the lowest unit costs in the market.”
Maersk Line generated EBIT of $ 1,57 billion last year and $ 525 million in 2012, while CMA CGM generated $ 756 million in EBIT last year and $ 1 billion in 2012, according to financial data compiled by Sealntel. MSC does not report its’ financials publicly. That compares with 2013 operating losses of $ 395 million at China Shipping Container Lines, $ 285 million at Hanjin Shipping and $ 238 million at CSAV. APL showed a $ 231 million EBIT loss last year.
The largest loss last year was experienced by the Israeli carrier Zim, which added a $ 530 million net loss to a loss of $ 428 million in 2012. The carrier is embarking on a restructuring plan involving a new ownership structure that it claims will “dramatically” improve upon total losses of almost $ 1.4 billion accumulated over the past three years.
“We find that six carriers have posted significant financial losses from 2011 and onwards – APL, Cosco, CSAV, Hanjin MOL and Zim whereas, both Hapag Lloyd and OOCL have presented positive EBIT results in the same period,” SeaIntel said. Even among those carriers, ship size made a difference. “In terms of total fleet, OOCL is not in the Top 5, but its’ average size per vessel makes them more profitable than many of the rest.” Paul Wan, Head of Asia Transport Research for CLSA, told the JOC.
Port productivity battleground among container terminals
As container ships are getting larger, the increased number of containers which needs to be loaded and discharged at a single port call is creating a whole new set of challenges for ports, including a need to improve the average number of moves per hour at the berth and handling surges of truck gate moves.
New initiatives on port productivity will focus on key areas of port automation, intelligent planning and control systems and green pot solutions.
The most critical key performance indicator is the average number of berth moves per hour. Jebel Ali with 95 moves per hour, Busan and Shanghai at 92 moves per hour rank high as at today.
Alphaliner figures show that with the largest ships on order, from China Shipping Container Line, able to handle 19,000 TEUs, container ships are getting larger at a faster rate. More than 82% of the current order book is for vessels over 8,000 TEUs, Drewry told the TPM conference in Long Beach last month.
Carriers evaluate ports and terminals in part on the basis of how quickly they can turn around ships and in many regions have options on where they can send their ships, stoking competition among ports.
[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).]