Ocean carriers are deploying ever-larger box ships to drive down slot costs and emissions per unit. But they are sacrificing their own flexibility and are driving up costs for ports and truckers. Overall, the hoped-for benefits haven’t appeared and may even be a net negative, analysts say.
World’s biggest ship makes its debut
The world’s largest container ship, the MSC Gülsün, recently completed its maiden voyage from northern China to Europe, the ocean carrier Mediterranean Shipping Company has said.
With a breadth of 60 meters and a length of 400 meters (197 foot by 1,312 feet), the Gülsün can carry up to 23,756 twenty-foot equivalent (TEUs) shipping containers on one haul. Part of capacity included 2,000 refrigerated containers that can be used to haul food, beverages and pharmaceuticals among other chilled and frozen cargoes. The ship was built at the Geoje shipyard, South Korea, by Samsung Heavy Industries.
Simon Heaney, the senior manager of container research at international shipping consultants Drewry, provided some insight to FreightWaves into the nature of the ultra-large ocean container vessel trades.
How many big ships are there?
There are currently 47 ships of 20,000 TEUs in service and a further 37 on order for delivery between now and the end of 2021. That includes 12 ships of 23,000 TEUs on order by the South Korean shipping line HMM, Drewry’s Heaney says.
He added that if classifying any ships with a capacity of greater than 18,000 TEUs as an “ultra-large” container ship, then there are a total of 105 of them with a total capacity of 2.06 million TEUs in service today and a further 37 ship with a total of 816,000 TEUs on order.
Such large ships offer a variety of benefits. International ocean shipping generally is considered to be the most environmentally friendly form of transport as, per box carried, ships consume less fuel and therefore release less carbon that other transport modes.
MSC says that the new generation of ultra-large boxships have their environmental credentials boosted through design features such as optimized bow shapes that reduce water resistance and, hence, fuel consumption. The MSC Gülsün also is equipped with a hybrid exhaust gas cleaning system and can be adapted for using liquefied natural gas in the future.
Slot costs fall; supply chain costs increase
From an operational expense perspective, Drewry’s Heaney pointed out that “they provide significant slot cost savings to operators, which in theory can be passed down to cargo owners in the form of lower freight rates.”
But Heaney said, somewhat counter-intuitively, that ultra-large ships don’t necessarily always lead to a fall in costs across the supply chain.
“ULCV cost savings at sea are countered by higher costs at port. A year or so ago 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 mega ships only works for the total supply chain if terminals can increase productivity in line with increases in vessel size, which they are not.”
Cascading down, down, down
Deployment of such large ships has a wide variety of effects. One effect is that their deployment causes a “cascade” effect. As the ultra-large ships are deployed on the biggest trade lanes, typically the Asia-Europe and the Asia-North America, they typically push out the smaller ships working that trade lane. Those ships are then redeployed to the next-less busy lane, where the process repeats.
Eventually, large box ships are deployed even onto small-volume trade lanes. For instance, in Australia, the average box ship was about 4,500 TEUs. However, in the last few weeks, Australia has seen the record deployment of box ships with a capacity of greater than 9,500 TEUs.
There’s been a noticeable change in the pattern of trade underway at Australia’s second-biggest box port, Sydney’s Port Botany. Botany handled more boxes in 2018 compared to 2017 — but those boxes arrived and departed on fewer, larger, container ships.
Overall, there were 1,119 box ships that called at Botany in 2018, about 2% less than the year before. It was mostly the much-smaller ships that stopped calling. Ships with a container-carrying capacity up to 999 TEUs made 47% fewer calls at Botany. Ships with a container-carrying capacity up to 3,999 TEUs (this includes ships up to 999 TEUs) made 388 calls at Port Botany last year, down 16% on the 2017 figure.
But vessels in the 6,000-to-6,999-TEU range generated a 76% increase in the volume of calls. There were 59 calls by vessels in this container-carrying size in 2017 and 104 in 2018. That’s an extra 45 ships. Meanwhile, in 2017, only one ship in the 8,000-plus-TEU range called at Botany but 19 ships called at Port Botany in 2018.
But there limitations on the cascade effect.
Big ships stopped by small ports
“The trickle down doesn’t always reach the bottom as some of the intermediate trades are simply burdened with too much capacity. The very small feeder trades cannot always accept bigger ships due to physical port restrictions,” Heaney explained.
It’s not just the feeder trades either. Heaney said there have been trials of ultra-large container vessels deployed in the U.S. West Coast but that they typically haven’t really worked out.
“Ultimately, U.S. ports are not sufficiently equipped to handle them efficiently. Without switching to more automation and 24/7 operations, it is unlikely that these ships will be seen in the trans-Pacific in the foreseeable.”
Flex, flex, flex… or a lack thereof
That leads to a further problem: a lack of flexibility. If the big ships cannot go into different ports around the world, then the ship operator could find itself stuck if, for any reason, deployment on a given trade lane isn’t working out. It happened in the oil tanker market about 50 or 60 years ago when the industry created super-sized “ultra-large crude carriers.” When there was a downturn in trade, the big ships were simply too big to go anywhere else.
“Lack of flexibility is the other major problem for liners. As ULCV deployment is basically limited to the Asia-Europe trade (with a couple of exceptions), they are reducing carriers’ ability to respond to changes in demand as they have fewer capacity levers to pull and as mentioned they force the cascade of larger units into other trades, which may or may not be able to accommodate them from a demand perspective.”
Heaney added that where they are deployed, such large ships cause a “major problem” for land-side logistics. The issue is that fewer, but bigger, ships bunch up what otherwise might have been a steady flow of cargo. We see this effect when there are various disruptions to shipping — for instance, a hurricane might cause a port to shut down for a few days. Ships will alter speed and course to avoid the cyclone and that might cause several ships to arrive at the same time. That causes terminal congestion and a blowout in trucking turnaround times for trucks waiting to get into the container terminal.
“Using bigger but fewer ships bunches the loads, creating sharp peaks in activity that are hard to manage and lead to potential terminal congestion, especially if there are scheduling delays,” he said.
Big question mark over the big ships: are they any good?
So there’s a valid question of whether or not the introduction of these ultra-large container ships has been a good thing for international supply chains. Heaney isn’t convinced that they have been an unalloyed good.
“It really depends on where you sit in the supply chain. For cargo owners, they have benefited [from] lower rates as these ships have added to the market overcapacity. Although you could argue their introduction has hastened the alliance and consolidation processes as fewer operators are able to compete, leading to a reduction in supplier choice. There is also the greater risk to contend with.
“Ports and terminals have been seriously challenged by the ULCVs and face significant [capital expenditure] to upgrade facilities in order to handle them or see business go elsewhere.
“For liners, I would say the arms race has thus far been negative overall due to the impact on freight rates and stress they have placed on networks. They have upside in terms of slot cost savings and lower emissions per TEU, but in general I think they have thus far failed to deliver the hoped-for benefits and have denied carriers some of the flexibility required in a dynamic market.”