Too BIG to sail? Container ship giants veer off course in battle of the mega vessels

Container shipping lines have gone astray in serving global trade amid their craze for mega vessels

PUBLISHED : Monday, 09 February, 2015, 12:09am
UPDATED : Monday, 09 February, 2015, 4:41pm

Being recognised as the biggest in the world must have its attractions, but it cannot be fun knowing from day one that a competitor is on track to eclipse your record.

That has been the experience of China Shipping Container Lines, which had the world's biggest container ship, CSCL Globe, for a little over a month until the arrival of the MSC Oscar, operated by Geneva-based Mediterranean Shipping Co.

The 400-metre CSCL Globe, longer than four soccer pitches, can carry 19,100 standard containers. The MSC Oscar, delivered last month, is slightly shorter but is able to carry 124 more containers, allowing it to gain the title of the world's largest container ship.

But the MSC Oscar's time in the limelight will also be limited.

Another leviathan, the Barzan - owned by Dubai-based United Arab Shipping Co - will break the record when it is delivered by South Korea's Hyundai Heavy Industries in April. UASC has yet to reveal the Barzan's capacity but it told the South China Morning Post that it would be bigger than any existing container ships.

Such rapid record-setting has never been seen before in container shipping, which has been instrumental in helping global trade take off. Before the revolution known as containerisation - packing a variety of goods in standard metal boxes on ships and ensuring they could withstand rough conditions at sea and be handled efficiently at ports - the absence of a cheap, efficient and safe mode of transport was the main hindrance to trade growth.

In The Box, Marc Levinson tells of a 1954 study that found a ship carrying about 5,186 tonnes of cargo, mostly food and household goods, from Bremerhaven, Germany, to Brooklyn in the United States contained 194,582 individual items of every size, and it cost US$5,031.69 alone in lumber and rope to hold everything together on board and took longshoremen 10 days to load and unload.

After decades of striving for greater efficiency, shipping lines and marine engineers transformed the face of global trade through bigger container ships. Today, most ships plying Asia-Europe and Asia-US sea lanes, the busiest in the world, carry 8,000 to 18,000 teu (20-foot equivalent units). A container can hold about 48,000 bananas.

"In the 1970s, the largest container ships were of 2,000-teu capacity and it cost US$4,000 to ship a container from Asia to the US, which in today's money terms would equal US$20,000," said Andy Lane, a partner at Container Transport International Consultancy. "With ship upsizing, it costs only US$1,000 now."

Such economies of scale have made logistics costs almost negligible in a manufacturer's sales planning. The cost to ship a T-shirt made in Asia and sold for US$10 in American stores, for example, is only 50 US cents.

In his book, Levinson described containerisation as a development with "sweeping consequences for workers and consumers all around the globe".

"Without it," he concluded, "the world would be a very different place."

But a series of developments in the past few years have seen the industry increasingly veer off course as an enabler of global trade. Captivated by a craze for big ships and desperate to survive, the world's major container carriers embarked on an arms race, ordering newer and larger vessels that could not be filled by cargo as trade growth slowed, leaving most with losses, debts and disgruntled customers who complain of ever more frequent shipment delays.

The current fad for ultra-large container ships started in 2011, when industry leader Maersk Line, whose 15,550-container Emma Maersk had held the biggest ship title for five years, ordered 20 bigger ones with a capacity of 18,000 teu. The ships, dubbed Triple-E class by the Danish company, each cost US$190 million.

Just before the first Triple-E was about to be delivered in May 2013, CSCL ordered the even larger 19,100-teu series.

Meanwhile, France's CMA CGM upgraded its existing orders to 18,000-teu capacity. Lloyd's List reported that Taiwan's Evergreen Marine Corp was behind 11 orders for 20,000-teu container ships three weeks ago, which when delivered in 2018 will break the Barzan's record. Even Hong Kong's Orient Overseas Container Line, a conservative player in the battle for size, is contemplating joining the "big league".

"When Maersk planned the Triple-E investment, they didn't foresee and didn't believe anyone would have the ability to follow," a Maersk executive said. "I don't think anyone expected what is happening now and at such speed."

Jonathan Beard, who heads global ports and logistics research at US consultancy ICF International, said: "The rationale for shipping lines is that economies of scale will deliver lower unit costs and restore profitability. But over the past 10 years, shipping lines have endlessly invested in newer, larger vessels, yet the industry's profitability and return on capital have remained pitiful. Supply-demand [balance] is still the key determinant and until the market clears … failing shipping lines and shipyards go out of business, there will be little improvement."

Trade growth no longer justifies such massive capital expenditure. Data from British maritime consultancy Drewry shows the gap between fleet growth and trade growth has widened since 2006.

Carriers now face a dilemma: without using the newest and largest ships to lower operational costs, they risk losing business; but by investing in a state-of-the-art fleet, they exacerbate a supply glut and poor freight earnings and may eventually struggle to stay afloat.

"Flooding the market with additional capacity is counterintuitive, and I believe all shipping lines know that," Lane said. "It has, however, become a case of 'you are damned if you don't, you are damned if you do'."

In order to fill their ships, carriers have opted to befriend their foes. After obtaining antitrust clearance, most of the world's top 20 container lines grouped last year into four major alliances, or operational blocs with joint networks, sailing schedules and exchanges of vessel space.

As a result, port operators and shippers - those who commission freight with shipping lines - are feeling the pinch. Last year, a number of ports in Asia, Europe, the US and Africa experienced worse-than-usual congestion. Although reasons for the gridlock varied between ports, the underlying cause was related to the expanding size of ships and the alliances using them.

"The reasons for congestion last year were mixed, partly due to big ships, partly due to other factors," said Neil Davidson, Drewry's senior ports and terminals analyst. "The concerns going forward are the number of big ships coming to service won't make it any easier. It will become harder for terminals to handle these ships. The likelihood of congestion will increase as a result."

SeaIntel Maritime Analysis, a Copenhagen-based consultancy monitoring the punctuality of container shipments, reported only 72.2 per cent of vessels arrived at ports on time last year and only 58.2 per cent of containers were delivered on schedule in December.

"If I send something via DHL or FedEx, I know exactly where my package is. But when I send a container with a shipping line, I pray to God that it arrives at the time the shipping line told me," the head of logistics at a leading European retailer said.

"In the 1990s, before the creation of the big vessels, I at least had around 80 per cent punctuality.

"As shipping alliances get bigger, I become smaller comparatively and have less bargaining power. Shipping lines don't bother if I switch my freight contract to their competitor."

Lane said container ships could not grow infinitely and cost savings from upsizing would soon begin to plateau.

"Going forward, risks will outweigh gains," he said. "Physical geographic restrictions, ability to fully utilise, product offerings, transit times, inflexible fleets, insurance, etc, are all significant risks associated with deploying a new generation of ship."