One of the most asked questions from Drewry’s container market outlook webinar last month was if we think other carriers will follow CMA CGM and MSC with a further ordering spree for Ultra Large Container Vessels (ULCVs) of over 18,000 teu.
Our answer at the time was that we think it unlikely, but not impossible. Since then, Cosco Shipping Holdings has announced plans to raise a huge $1.9 billion war chest through the issuance of new shares, which will be used to part fund the purchase of 20 new ships, including 11 units over 20,000 teu and nine in the more modest 13,800-14,500 teu range. Meanwhile, Korean line Hyundai Merchant Marine (HMM) has also denied various reports that it is planning to splurge on as many as 14 vessels of up to 22,000 teu.
As well as proving that no analyst can ever be right all of the time, the latest developments highlight the shortage of logical assumptions that one can reasonably apply when predicting newbuilding plans.
Our rationale for being doubtful on new orders included financing constraints, latent market overcapacity and the size of the existing orderbook. Additionally, we believe that the scale economies argument for wanting ULCVs in the first place is false as cost savings at sea are countered by higher costs at port, which in theory should have reduced the industry’s appetite for them.
Last year, Drewry carried out a simulation study of the operational and financial impacts on lines, terminal operators, ports and other supply chain stakeholders as vessel size increases up to and beyond 18,000 teu. The study found that scale economies from megaships only work for the total supply chain if terminals can increase productivity in line with increases in vessel size. Figure 1 shows the combined shipping line and port ‘total system’ cost savings peak at only 5% of total network costs and economies of scale diminish as vessel sizes rise beyond 18,000 teu.
Source: Hellenic Shipping News.