If the quest for bigger and bigger containerships has run its course, future vessel ordering may instead be based on individual lines’ assessment of future demand growth, according to a new report from London-based shipping consultant Drewry.
The economies of scale achieved by operating larger containerships may be running out, according to Drewry.
The London-based shipping consultant said it reached that conclusion after a simulation study of the operational and financial impacts on lines, terminal operators, ports and other supply chain stakeholders as vessel size increase up to and beyond 18,000 TEUs.
“Since 2009, leading container shipping lines have engaged in a new-build ‘arms race’ with vessel sizes increasing at breakneck pace to drive down unit costs and improve profitability,” said Drewry.
“This race-to-scale is set to continue with a further 53 megaships expected to enter service in 2016. While bigger ships help carriers reduce voyage costs, these savings are increasingly offset by higher port and landside costs meaning that total system cost savings are small and declining.”
Drewry’s comments come days after Chris Welsh, the head of the Global Shippers’ Forum, complained about declining service quality as the liner industry employs ultra-large containerships and forms “super alliances.” Welsh called for an international forum to address the issue.
Industry analyst Alphaliner, said on Jan. 1 13 ships of 18,000 to 21,000 TEUs were scheduled to be delivered in 2016, 25 in 2017 and 29 in 2018. It said 21 ships of 13,300 to 17,999 TEUs were scheduled for delivery in 2016, 19 in 2017, and 14 in 2018.
“Larger vessels place greater demands on ports, where channels have to cater for deeper draughts and on terminals, which need to upgrade equipment, yard facilities and manning levels to effectively handle increased peak cargo volumes. On a total ‘system cost’ basis the study found that the upsizing of vessels provides only modest savings for the overall supply chain with efficiency gains being further eroded as vessels size increases beyond 18,000 TEU,” said Drewry.
“Even with no further increase in maximum vessel size, the sheer number of mega vessels expected to be delivered in 2016 will strain terminal resources, as the average size of ships increase the amount of cargo that has to be handled at times of peak container activity,” it added.
Drewry said its study found:
• Combined shipping line and port ‘total system’ cost savings diminish as vessel sizes rise beyond 18,000 TEU;
• Terminals will incur significant capital expenditure to handle larger vessel sizes and terminal yard areas will need to increase by one third to avoid congestion, even with no growth in volume;
• Scale economies from megaships only work for the total supply chain if terminals can increase productivity in line with increases in vessel size;
• There are risks to continue upsizing leading to lower service frequency and/or less choice for shippers;
• Higher supply chain risks as volumes are concentrated in fewer vessels;
• And environmental effects arising from dredging deeper channels and expanding yard area.
Tim Power, managing director of Drewry, said, “To ensure the economics of vessel upsizing continue to benefit the entire supply chain, lines and ports need to work in a more coordinated manner if further productivity improvements from the transport system are to be realized.
“Addressing the operational and cost effects at port facilities caused by the challenging load and discharge patterns of these larger ships requires a cross-industry effort,” he added. “All stakeholders in the supply chain must recognize the need for dialogue and collaboration if the maritime transport system as a whole is to benefit. If these benefits cannot be delivered and economies of scale in this industry really are running out, the implications are profound.”
Drewry said, “There is a wider possible implication of these findings for the industry: if economies of scale in liner shipping have finally run their course, future vessel ordering will no longer be driven by the need to secure economies of scale but will instead be based on lines’ assessment of future demand growth.”
“When this happens, the tendency to structural overcapacity that has plagued the industry will be much reduced,” said Power. “If this were combined with a process of continuing industry consolidation, liner shipping might at last be in a position to generate sustainable profitability.”
Drewry: Diminishing economies of scale for vessels beyond 18,000 TEUs
