Evergreen doubles down on mega-ship order

Evergreen doubles down on mega-ship order

The board of Evergreen has decided to dramatically increase the number of mega-ships in the carrier's fleet. Photo credit: Shutterstock.com.

The mega-ship arms race is far from over, as evidenced by Evergreen Marine’s Wednesday commitment of nearly $1.8 billion to order or charter 11 vessels of 23,000 TEU, just as the last of a 2015 order for 11 ships of 20,000 TEU is readied for delivery.

The board of directors of the Taiwanese carrier this week approved the order of five to six 23,000-TEU ships at a cost of up to $960 million, and the chartering of four to five additional mega-ships at a transaction cost of between $600 million and $800 million.

No information was provided on delivery dates, but the vessels should begin coming online from 2022 and will be destined for the Asia-Europe trade, the only route that has the terminals to handle such large ships.

Evergreen joins HMM and Mediterranean Shipping Co., which have also ordered a series of 23,000-TEU vessels. MSC is scheduled to take delivery of 11 ships of 22,000 to 23,000 TEU from August, while CMA CGM has nine 22,500-TEU vessels that will be delivered from December, and HMM’s 12 ships of 23,000 TEU will start arriving in 2020.

Not all carriers are opening the mega-ship spigot, however. Maersk Line CEO Søren Skou said his carrier has no plans to order ultra large container vessels until 2020 at the earliest.

John Butler, CEO of the World Shipping Council (WSC), whose members represent 90 percent of global liner shipping capacity, said for the past 30 years ships have been growing in size as the market has evolved, and ports have to adapt to the bigger vessels.

“The ports are competing to serve these vessels. Is it without some sort of disruption? Of course not, but the use of large vessels is driven by the economies of scale that come with those large vessels,” Butler told JOC.com.

“For Asia-Europe, the larger ships can be accommodated by ports at both ends and there are cargo volumes available to make the use of those vessels economically attractive. That has been to the benefit of shippers that have seen their real rates for transportation fall precipitously for the last 20 years.”

Port pushback

But the continued drive by carriers for the scale economics derived from deploying mega-ships is starting to receive some pushback from port and logistics representative bodies.

A joint study was made by the European Transport Workers’ Federation (ETF), the Federation of European Private Port Companies and Terminals (FEPORT), and the European Sea Ports Organisation (ESPO) into developments in the maritime and port sectors and was released in July. The study found that container terminal operators were evolving in a highly competitive environment and have made “tremendous efforts” to adapt their terminals to the ever-growing size of vessels and their cascading effects.

“Already for some decades, the dynamics in the shipping industry are driven by the principle of economies of scale with the objective to reduce the cost per unit. These dynamics result in a shift of costs on other actors of the maritime logistics chain, such as terminal operators who need to invest in equipment,” the study found.

Alliances operating ultra large container ships are also focusing their port calls and decreasing the number of calls, leaving terminals struggling to find a return on investment for their new equipment.

“Terminals are required by their customers to invest more and more often, but due to the game of the alliances they do not get certainty on the return of their investments,” said Livia Spera, ETF acting general secretary.

“The study did not put forward evidence that all these huge investments give the guarantee that the cargo handling services will be more efficient and cheaper and that it fulfills the needs of the shipping industry, such as fast turnaround time.”

Mega-ship impact

The enormous ripple effect mega-ship calls are placing on European gateway ports and their hinterland logistics has also been highlighted by industry academic Theo Notteboom.

The professor in port and maritime economics and management, and director of the Center for Eurasian Maritime and Inland Logistics, told a conference that a 20,000-TEU ship with a call size of 8,000 TEU — with 2,400 of those containers transshipped and 5,600 TEU heading into the hinterland — would require 14 trains of 750 meters (2,297 feet) each, 1,120 trucks carrying two TEU, and 12 barges carrying 196 TEU.

According to Rotterdam, an 18,000-TEU vessel calling at the Dutch port can exchange 10,000 TEU, and to transport the cargo onward, the ship requires an average of 10 feeder vessels, 19 trains, 1,560 trucks, and 32 barges.

It is easy to see how having several mega-ships in port at the same time is a logistical nightmare that can quickly choke a port. Shippers using the ports of Rotterdam and Antwerp regularly face barge shipping delays, with intermodal operator Contargo reporting on June 25 that handling delays for barges stand at 28 hours in Antwerp and 24 hours in Rotterdam.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.