Super-Sized Challenge

Super-Sized Challenge

The stunning increase in super-post-Panamax container ships provides carriers with economies of scale and a tricky management challenge.

Balancing supply and demand of the giant ships — vessels with capacities of at least 8,000 20-foot-equivalent units — during the next two to three years will require moderate trade growth, the capture of additional market share from smaller vessels, continued slow-steaming to absorb capacity and, “most importantly,” further delays in deliveries of new ships, a European shipping bank warns in a research report.

If owners and operators abandon the “pro-active supply management” that restricted capacity and enabled them to return to profitability last year, the wave of large ships scheduled for delivery in 2011 and 2012 will cause Asia-Europe rates to crash. “This will, in turn, weigh on the entire container shipping market,” said the report by the Rotterdam-based maritime practice at DVB Bank, the Frankfurt-based banking and investment firm.

 Since 8,000-TEU ships entered service in 2003, super-post-Panamaxes have gained a dominant share of the Asia-Europe trade and “are becoming the backbone of the operating fleet of the top tier global liners,” DVB said in its report on the outlook for the large ships.

By last November, 289 super-post-Panamax ships with 2.75 million TEUs of nominal capacity were in regular liner service. Of these, 197 ships were on Asia-Europe routes and 31 on Europe-Asia-West Coast pendulum services. Ships with 8,000-TEU-plus capacity account for 62 percent of Asia-Europe capacity, a market share expected to rise to 85 percent by the end of 2013.

Most of the remaining 61 vessels were on trans-Pacific routes, with a handful on Suez routes between Asia and the U.S. East Coast.

An additional 236 super-post-Panamax vessels totaling almost 2.6 million TEUs are on order, the DVB report said. That total amounts to 95 percent of the existing super-post-Panamax fleet’s capacity and two-thirds of the total container ship order book.

About 100 super-post-Panamax vessels with 1.1 million TEUs of nominal capacity are due for delivery this year, with another 73 vessels with 860,000-TEU capacity scheduled to enter service in 2012.

The added capacity will be more than Asia-Europe routes can absorb, even at an expected 8 percent growth in cargo volume, DVB said. To maintain market balance, about 5 percent of new super-post-Panamax orders must be canceled and 20 percent of deliveries postponed during the next two years, the report said.

Carriers have absorbed much of the growing capacity by slow-steaming. Most Asia-Europe loops now use 10 ships instead of the eight that were required at full speed. But unless fuel prices jump and ship charter rates drop, “any additional artificial vessel demand created by slow-steaming is expected to be limited in the near future,” DVB said.

Because of their size, super-post-Panamax vessels can be deployed on only a limited number of high-volume routes, led by Asia-Europe, where average vessel size has risen to 7,594 TEUs from 4,816 TEUs in 2003.

With super-post-Panamax ships being added at a rate faster than expected market growth, more of the big ships are likely to be deployed on other trades, primarily the trans-Pacific. DBV forecasts the market share of 8,000- to 10,000-TEU ships in Asia-West Coast services will rise from the current 25 percent to 40 percent by the end of 2013.

DVB analysts said the trans-Pacific offers fewer opportunities for slow-steaming. Vessels tend to be smaller than on Asia-Europe routes, reducing the advantage of slow-steaming, and the smaller number of ships per loop makes trans-Pacific services “more sensitive to the fixed costs of deploying additional vessels.”

Orders for 8,000-TEU-plus ships peaked in 2007 at 181 vessels of 2 million TEUs before drying up when the market crashed during the 2008-09 recession. Now some owners are again placing super-post-Panamax orders. Most are for vessels under 10,000 TEUs, although Maersk Line was reported recently to be in advanced discussion with Korea’s Daewoo Shipbuilding to order 10 ships of 18,000-TEU capacity.

Taiwan-based Evergreen, which sat out the ordering spree of a few years ago, ordered 20 ships of 8,800-TEU capacity for a reported $103 million each last year and plans to order 10 more. Neptune Orient Lines has ordered ten 8,400-TEU ships for APL for a reported $98 million each.

Average per-slot costs of 8,000- to 10,000-TEU ships have dropped to about $11,500 from the $16,900 that prevailed in 2008 when the last orders were placed for similar-sized ships, the DVB report said.

Contact Joseph Bonney at jbonney@joc.com.