To get a sense of the scale of the world’s largest commercial container ships, it may help to stand in New York’s Times Square. The containers that would fill what’s called the Triple-E ship also would fill up the six blocks or so of Times Square, reaching to the tops of many of the buildings and spilling over onto the side streets.
The shipping industry has been working with so-called mega-ships for several years, but even the largest of those are just three-quarters of the size of the vessels Maersk Line is buying. Due to push to sea in two years, the new behemoths are challenging the business to devise new terms to match a new scale of operations on the water — and a new scale for the economics of moving goods that will echo across the supply chain.
The ships are the new Triple-E class, capable of carrying 18,000 20-foot equivalent container units each. The shipping subsidiary of Denmark’s A.P. Moller-Maersk — the world’s largest ship operator, as it turns out — ordered 10 of them from South Korea’s Daewoo Shipbuilding for $1.9 billion in February and has an option to buy another 20.
When delivered between 2013 and 2015, the first 10 vessels will be deployed between Asia and Europe, the only trade lane with ports that can handle ships that size.
The vessels also will mark the largest step yet in a transportation world that is testing the limits of technology and economics as companies scale up, bulk up and build up the equipment they use to move goods. From the stocky Airbus A380 in the air to the 3.5-mile “monster train” Union Pacific rolled through Southern California last year, operators are chasing the productivity improvements and the lower unit costs that come with larger equipment.
If those costs are as low as Maersk hopes, the new ships also will drive down costs for shippers and potentially push new trade.
But once they reach berth, the ships also will raise new questions about port terminal infrastructure, labor and the capacity of railroads and truckers to efficiently handle a few thousand more containers dropped into inland distribution channels.
The ships are called Triple-E because of their environmental performance, energy efficiency and economies of scale, all of which Maersk sees as growing more important in coming years.
They are the first new class of container ships that will have slower top speeds than the last class as cutting fuel consumption has taken priority over speed. With the massive ships carrying more containers and moving at slower speeds, there could be fewer containers available on the docks.
The combination of the three “E” factors will cut the cost of transporting a container from Asia to Europe by 20 to 30 percent. “Compared to a 13,000-TEU ship, the cost advantage is 26 percent,” said Soren Andersen, vice president of vessel management for Maersk Line.
That cost advantage will help Maersk maintain its profitability on the competitive Asia-Europe trade, but it also will increase pressure on the Danish carrier to maintain schedules if the volume of containers being unloaded at any European port is so large that delays ensue.
But the economics on the water make the ships especially compelling.
The unit cost advantage will give the world’s largest container shipping line new pricing power in the competition for cargo on that route — but power to resist rate-cutting rather than power to push up rates.
With the lowest cost base per container of all the carriers on that lane, Maersk will have two options other carriers would be hard-pressed to match: The company can compete for market share by charging lower freight rates than its competitors, or it can hold its rates steady and turn a profit on each container it carries even when rates are down, as they are now.
“I don’t see us able to push the rates up, but it will give us a cost advantage, which means we will be better able to survive when the rates are down,” Anderson said.
“They will have a commercial advantage,” said Paul Dowell, director of research and consulting at London shipbroker and chartering agent Howe Robinson. “There’s an actual economy of scale over the 13,000-TEU and 14,000-TEU ships that are coming to market now.”
Maersk is promoting the Triple-E ships not as the biggest ships, but as the “greenest” ships, with technology that will cut carbon dioxide emissions as much as 50 percent over the average fleet emissions.
“They are anticipating the time when the carbon impact will be a true selection criterion for shippers,” said Philip Damas, division director of London-based Drewry Supply Chain Advisors. “Building a vessel with lower carbon impact means they are going to target the larger retailers for whom it is important in terms of their own PR to say they are reducing the impact of their supply chains.”
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The operating cost advantage is clear enough, but Maersk is paying dearly on the capital cost side.
Before the 2009 downturn in global trade, the price of standard 12,000- to 13,000-TEU ship was $150 million to $160 million. Each of the Triple-E ships in the first order will cost $190 million, including about $25 million to $30 million of extra equipment, technology and twin engines Maersk ordered to enable to ships to steam slower, burn less fuel and produce lower carbon emissions.
But even those hefty ownership costs carry something of a discount. Maersk ordered the vessels at a low point in the shipbuilding cycle, when Asian shipyards have fewer orders than during the boom years before the Great Recession.
“It’s a good time to order ships because the demand is much lower than three or four years ago,” Andersen said. “Prices for standard ships are 25 percent lower than they were a few years ago, and we are taking advantage of that price drop.”
Maersk also ordered at a time when some competitors are having difficulty raising the funding to buy new ships because many banks have largely pulled back from financing maritime purchases after so many of their loans turned sour during the recession. “They’ve done it at a time when they know that their competitors can’t leverage the finance to keep up with them,” Dowell said.
“Should we decide to go for all 30 vessels, it is going to be c
lose to $6 billion, and that will make it the largest order ever seen in shipping,” Maersk Line CEO Eivind Kolding said in announcing the order in February.
Kolding said the first decision will come in June, and he and Andersen expect Maersk will exercise the option for an additional 10. “
Maersk started looking at the design of the new Triple-E ships last year because it needed additional capacity to keep up with the projected 5 to 8 percent annual growth in Asia-Europe trade.
It took 10 months to finalize the design, longer than the standard shipbuilding project, because Maersk spent a lot of time going over the potential design with shipyards. The design had to burn less fuel and produce less carbon emissions while carrying more containers in about the same footprint as the 15,500-TEU Emma Maersk, still the largest container ship in the world.
The design it settled on will burn 50 percent less fuel than the industry average and 20 percent less than the Emma Maersk. It also will cut carbon emissions 50 percent. It can carry 16 percent more containers than the Emma Maersk, although the dimensions of 1,312 feet long by 194 feet wide are only slightly larger than the 1,302-foot length and 184-foot width of the Emma Maersk.
“The design is bulkier than the Emma Maersk, which has finer lines, because it’s designed to go at a slower speed,” said Bo Cerup-Simonsen, vice president of Maersk Maritime Technology.
The box-like design moves in the direction of the extreme box shape of tankers, which are designed to go at slow speeds. “This gives us quite a bit of extra cargo capacity inside the hull, and it gives us extra deck capacity,” he said.
The Triple-E ships will have twin engines and twin screws, which cost more to develop, build and operate. “But the gain in fuel efficiency will outweigh the extra costs,” Cerup-Simonsen said. Each of the propellers requires less power and can run at slower speeds. The twin propellers provide more power, have fewer blades and can run at slower revolutions per minute.
The ships will be able to run as slow as 10 to 12 knots, but the norm for slow-steaming on the Asia-Europe trade is 17 to 20 knots now that high bunker fuel costs have pressed carriers to burn less fuel. Their maximum speed will be 23 knots, compared with the Emma Maersk’s 25 knots.
“This is the first time in the industry that a carrier no longer goes for maximum speed,” Damas said. “Previously, it was the faster the better. Now, Maersk appears to be preparing for a long-term era of moderate speed without the option to go fast.”
Supply chain managers, he said, will have to consider the tradeoff between basic shipping costs and slower speed, which raises inventory carrying costs and likely requires more stock in pipelines. “They will require longer lead times and more buffer stocks,” Damas said.
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He said this would increase the pressure on Maersk to maintain schedule reliability, because the Triple-E ships won’t be able to speed up significantly to make up for any delays. British retailer Marks & Spencer, for example, has said dependable schedules are more important for their supply chain then speed.
“Shippers are going to be more demanding of schedule reliability,” Damas said.
Even after they are delivered, the Triple-E ships can be retrofitted as new, more efficient technologies are developed. “We have a lot of ships that are being operated with new technologies that are retrofitted on them. For example, we are implementing advanced electronic controls on our engines that can fine-tune them,” Cerup-Simonsen said.
Whether ports on the Asia-Europe trade will have to do some of their own retrofitting to handle the ships is an open question, however.
“A number of terminals on the Asia-Europe route would be able to handle ships of this size today,” Andersen said. “It depends on how many containers you need to load and unload in a port and how quick the port is. It would not be 18,000 containers going on and off in each port call.”
There are some 15 ports on the Asia-Europe trade that can already handle ships the size of the Triple-E, he estimated. The ships are designed to carry 23 rows of containers stacked across the width of the decks, the maximum width for which ship-to-shore container cranes are designed.
And those boxes will hit distribution channels scaled for something smaller.
“We will need new technology for handling containers not only at the port but also for moves inland,” Martin van Dongen, regional manager for inland services at APM Terminals in Rotterdam, told the recent Global Liner Shipping Conference in London.
Ships the size of the Triple-E likely would remain in a port only from a half day to a full day. Maersk is still working on which ports the big ships would call because the network changes over time depending on where the volumes are and port prices and productivity.
“I can easily imagine calling 10 ports on a string,” Andersen said.
But ports may not have an easy time adjusting to ships the size of the Triple-E as they have in the past, when they had more time to get used to larger ships.
“We went from 5,000 TEUs in 1984 to 10,000 TEUs in 2005,” Damas said. “That’s 21 years, and ports had time to adjust. But now we are going from 10,000 TEUs to 18,000 TEUs in just eight years. It’s going to be tough for many ports to keep up. Retailers may have to wait two days to get their boxes if they are the last to be unloaded.”
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Contact Peter T. Leach at email@example.com.