Mega-ship trend “may be ending”


From “Flashlight”  June 2015


The trend towards ever bigger box ships may have passed its peak, according to a new report which questions whether ultra-large containerships (ULCSs) are now delivering economies of scale.

Produced by the Organisation for Economic Cooperation and Development ‘think-tank’, the International Transport Forum, the study says container transport costs have been cut by around one-third as a result of the doubling of maximum vessel capacity over the past decade.

However, the research warns, the ‘hidden’ costs associated with handling ULCSs — such as investment in new port equipment, berth and channel deepening and expanded infrastructure — are substantial, and governments should consider policies to recover them from operators.

The report argues that the cost savings from super-sizing containerships are actually decreasing with size and around 60% of the savings arising from the most modern vessels are linked to more efficient engines.

‘The massive ordering of new mega-ships has resulted in oversupply of containerships, which will most likely dampen some of the cost savings due to larger ships, as low demand results in fewer savings per transported container,’ it points out.

The report says the ‘herd effect’ following the first orders for new generation containerships fuelled ‘spectacular’ ordering over the past 15 years — with total TEU capacity set to reach almost 20m this year, four times the level of 2000.

However, it warns, the boom in capacity is ‘completely disconnected from developments in global trade and actual demand’ — with a consequential gap between supply and demand of around 20%, which is set to persist until the end of this decade, depressing freight rates and undermining profitability in the sector. The Forum advises countries to assess the costs of ULCSs against the overall economic benefits that they generate. It estimates that the annual knock on cost of handling mega-ships is around US$400m a year — with much of the dredging, infrastructure and port hinterland costs having to be met from the public purse.

State aid for shipping could be linked to the industry’s commitment to contributing towards such costs, the report suggests, and there should be better dialogue between governments and operators to ensure ‘optimised use of mega-ships’.

The report points out that the up-sizing of containerships has also been linked to the consolidation of the sector through mergers and take-overs, and containership alliances now account for four-fifths of the total fleet.