Ship sizes hit a ceiling

Ship sizes hit a ceiling

With the economy faltering and container lines complaining about poor productivity at marine terminals, it would not be unreasonable to imagine carriers mellowing out when it comes to breaking new barriers in vessel size. The larger the ship, of course, the greater economies of scale, an enticing attribute to mitigate rising fuel costs.

But the flip side of ever more enormous ships arriving in port is the stress they place on already gridlocked terminals as well as intermodal and barge connections as thousands of containers are disgorged at a clip. And, indeed, that is what is happening. Despite a record order book for container ships that, to be sure, is causing many a sleepless night due to the deteriorating global economy, container ship sizes have hit a ceiling.

The 18,000-TEU Malaccamax remains but a dream in the mind of naval architects. The largest classes of ships on order and beginning to enter service are in the 13,000- to 14,000-TEU range, the Emma Maersk being the first of this generation. There are currently none larger that are being built or are contracted for, according to Drewry Shipping Consultants.

An order announced last week for seven "ultra-large container ships" by German ship owner MPC Capital and to be classed by Germanischer Lloyd is typical of the current high end of the order book, at an announced capacity of 13,100 TEUs. As of mid-2008, there were 75 ships of 13,000 TEUs or larger on order at shipyards (out of 146 of 11,000 TEUs or more).

And that is where the upper limit is likely to remain for the time being, said Mark Page, director of liner shipping at Drewry's. The financial crisis and its broader impact would give any container line pause before stepping up to the next level in ship size. The largest vessels enter the Asia-Europe trade.

"With ships of the largest size, there is only one trade they can go in, and that trade has gone entirely flat," Page said. Equally important, the system of terminals, gates, rail and other connections must adapt to the current crop of so-called ULCSs before anything larger will be contemplated, he added. Because the current order book runs through 2012, the next generation of container ship won't likely materialize for several years.

"It is quite clear at the moment that in terms of the very largest ship size, there is a plateau, and no one has gone beyond that for the time being," Page said.

Why is that important? It reflects a welcome mood of moderation beginning to take hold. Just as there was excess on Wall Street, so there was in container shipping. And in both cases, nobody benefits in the end. Do shippers from Asia to Europe really stand to gain from base rates that have fallen, according to one source, into negative territory due to overcapacity? (That is, an all-in rate of $500 per container is lower than the total amount of the surcharges.)

Don't get me wrong; shippers like low rates, but they also need service, and when rates are that low, service has a way of going down the drain. One terminal chief I spoke with in Asia last week reflected the new mood in scoffing at the use of triple-lift cranes, due to the extra crane power and the operational complexities required to make the handling of three containers at a time really work in practice. He asked what the benefit is for Asian terminals to achieve hourly lifts per crane in the 40s while some European ports on the same rotations, especially in the U.K., struggle to break 20.

The other reason why a temporary halt to the upward spiral in ship size is welcome is purely operational. Of all the factors that impact the fluid movement of containers worldwide, ships that are too large are perhaps the largest risk. Ships can be built as big as can be imagined, and there has been a bias toward larger ships by container lines eyeing economies of scale.

But it doesn't take much excess in size before these mammoth ships run into the harsh reality of slower growth in landside infrastructure. Larger ships will widen the disequilibrium and set back efforts to calibrate the entire end-to-end system to handle the larger volumes that will eventually come, perhaps not as early as many had hoped. At this month's TPM Asia conference in Shenzhen, most speakers said they don't expect a recovery to occur until 2010. That is a long way off.