Age of the Megaship

Age of the Megaship

Copyright 2003, Traffic World, Inc.

The universe is expanding, the prevailing theory of physics says, and so are container ships. A new study confirms the increasing dominance of ships with capacities unthinkable a decade ago.

BRS-Alphaliner, a data service of Paris shipbroker Barry Rogliano Salles, said that as of mid-June there were at least 61 orders for ships with capacities of 7,400 to 8,400 TEUs. More recent statistics from American Marine Advisors of New York list orders for 64 ships with capacities greater than 7,500 TEUs, of which 50 will have capacities of more than 8,000 TEUs.

Orders for smaller vessels, meanwhile, are down. BRS-Alphaliner said the total capacity of the segment of ships capable of carrying more than 4,000 TEUs will increase by 30 percent a year, while the capacity of under-4,000-TEU ships will rise by only 3.2 percent a year.

The shift toward larger ships suggests heavier reliance by carriers on megaships for line-haul routes, as well as possible pricing pressure on carriers if trade volume doesn't keep pace with rising capacity. From 2000 to 2002, overcapacity due to a flurry of big-ship orders in the late 1990s forced rates down in most container trades, notably on high-volume routes such as the transpacific.

Will increased capacity lead to a new period of weakness in freight rates? Opinion is divided. A June report by Morgan Stanley on trade in the Asia-Pacific region said the surge in new ships could trigger a supply-demand imbalance in 2005 when many of these ships are scheduled for delivery. The reported noted that most of the new ships with capacities over 5,000 TEUs are too big for the Panama Canal and can be used only on long-haul routes such as Asia-Europe and the transpacific.

Capt. Yann Le Gouard, a consultant for BRS, believes robust growth in trade will offset the increased capacity. Barring an economic catastrophe, containerized trade will grow an average of 10 percent a year through 2010, he said. Peter Shaerf, senior vice president at the New York merchant banking firm American Marine Advisors, also believes there will be sufficient demand to absorb the increased capacity.

Growth in the size of container ships has been dramatic. The 4,000-TEU mark wasn't reached until the Econships of United States Lines in the early 1980s. The first 5,000-TEU vessels entered service in the early 1990s. Now most global carriers operate larger ships or plan to do so. Yangming, "K" Line, CMA CGM, Hapag-Lloyd, Orient Overseas Container Line, P&O Nedlloyd and Maersk Sealand are among carriers embracing vessels with capacities above 7,000 TEUs. Maersk Sealand's Sovereign Maersk, delivered in 1997, is said to have been the first ship with an 8,000-TEU capacity. Now several carriers operate a total of about 30 of these ships.

A March report by the U.S. Chamber of Commerce said the deployment of larger ships will have a "severe" impact on North American ports. Many Atlantic Coast ports can handle ships only half the size of 8,000-TEU behemoths. To accommodate the megaships, these ports would have to deepen channels and widen turning basins. Being too near a larger, better-equipped port also could doom secondary ports, which would be too close to pick up any feeder or transshipment service.

Despite the worries, the industry's love affair with megaships shows no signs of cooling. "There's a sense in the industry of trying to continually push the envelope in terms of size," Shaerf said. Although there has been talk of ships with capacities as large as 18,000 TEUs, many in the industry say the increasing size of ships eventually may reach a point of diminishing returns. Le Gouard said a ship larger than 15,000 TEUs would not be technically or nautically feasible.