Ocean Network Express unconvinced of mega-ships benefits

Ocean Network Express unconvinced of mega-ships benefits

Seemingly each year carriers set a new record for largest container ship in operation.

Operating mega-ships of 22,000 TEU was not the way forward and will place mounting pressure on landslide operations, believes Jeremy Nixon, the CEO of new Japanese carrier Ocean Network Express (ONE).

While mega-ships may be required on some routes, Nixon told the JOC’s TPM Asia conference in Shenzhen that he remained unconvinced at the need for such large vessels and the lower slot cost benefits often given as justification.

“There is still some debate about that because these bigger vessels have to spend more time in port, go at higher steaming speeds to catch up, and productivity at ports is just not keeping up,” he said during an executive panel discussion.

Nixon pointed out that 22,000-TEU vessels were already 10 percent longer than 14,000-TEU ships and carried 35 percent more containers, which meant terminal productivity had to be high to make it work.

“I am not convinced about these big ships and I don’t believe this is the way forward. We will need some 20,000-TEU ships. Horses for courses. Put them in respective trades, but they are not a universal type of product that can just clip into your other trade lanes, and until we get port productivity sorted out, the barge feedering and trucking connections smoothed out, all you are doing is putting pressure back on the land side and technically not giving such a good service to your shippers.”

Nixon said it was more about finding a suitable ship size that equally balanced out the entire supply chain and allowed products to flow evenly through between the ship and the warehouse.

“I think in the next few years you will see a differentiation in that strategy and you will see in the future who wins out — will it be the mega carrier with the lower slot cost [that will] win the game or another carrier looking more at point-to-point, offering better frequency, more reliability. We’ll see,” he said.

Also on the panel was APL chief executive Nicolas Sartini, who is firmly in the mega-ship camp and defended parent CMA CGM’s decision, and indirectly that of MSC, to order 20 vessels of 22,000 TEU.

“These ships are not speculation,” he said. “They are being ordered by shipping companies that know their business, that know their networks, that know their needs, and want to follow the growth in the market. What they want is reduced costs, but certainly not offer cheap rates. We know what cheap rates mean. Cheap rates mean Hanjin, and that is not the way we are going forward.

“We want to create value for ourselves and for our customers going forward, and that is why we believe the order for these nine vessels is a rational decision.”

Making the decision to order such large tonnage easier was the low price of the vessel construction. With no orders for container ships made in the past two years, the shipyards are offering fire sale prices for new buildings, something that was pointed out by fellow panel member Bill Guo, executive director shipping at ICBC Financial Leasing.

“The shipyards give such a low price, it is so attractive and the financial terms so good that no one can say no,” he told TPM Asia. “CMA CGM and MSC can use such high leverage and take advantage of such low unit costs at such a low price in their competition with Maersk Line.”

Guo said the price for brand new 20,000-plus TEU vessels was the same as the price of a 13,000 TEU ship. “The carriers can take advantage of the 30-40 percent lower price and then the bigger ships will compete with the smaller vessels ordered years ago, but at a cheaper price and with lower unit costs,” he said.

Considering the amount of mega-ship tonnage coming online over the next two years, the question of whether there is indeed a business case for ordering and operating the giant vessels was an important one.

IHS Markit data show the orderbook is between 13 percent and 14 percent of total global fleet capacity. Cosco Shipping Holdings, Maersk Line, Evergreen Line, and Mediterranean Shipping Co. are the top four carriers in terms of tonnage on order, and more than 80 percent of the vessels on order are above 10,000 TEU capacity.

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

Comments

The era of plug and play fleets is gone for sure. It was a nice strategy when you had one sailing a week or a fortnight in' major markets (showing age!). But volumes dictate vessel size and while some ports and terminals have modernized to accept the 18,000 + ships, others haven't - particularly those in the US. But lets don't confuse an aged and slow infrastructure with "the big ships aren't efficient and effective". In the right sized trades and with modern infrastructure and cooperative labor, they are.

I agree that the large vessels have a part to play on certain trade lanes where the cargo flows can support more capacity and the ports have the capability to work them. There are some major ports that still can't do a productive enough job with these vessels, and don't react well to hiccups. I believe the larger question is how the shipping lines are going to manage the supply and demand factors. The last five years show that they have not done a very good job of this critical point. The shipping industry has too much of a short-term tactical view of a much more serious longer-term issue. Even now, supposed rate restoration is showing signs of weakness. We are going to see more consolidation in the industry. The disruption is not finished.