U.S.’s Scorpio, China’s BoCom Order Five Triple E Giant Container Vessels

Scorpio Group, one of the world’s biggest tanker and bulk operators, and China’s Bank of Communications Co. have ordered a total of five giant Triple E container vessels that will be leased to Switzerland’s Mediterranean Shipping Co., people involved in the matter said Thursday.

The leases, which will have a duration of at least 15 years, are part of MSC’s plan to join forces with Denmark’s Maersk Line in a wide-ranging alliance called 2M. Set to go into force early next year, the 2M alliance is expected to control roughly 30% of all cargo moved on the world’s busiest trade routes and save the two companies billions of dollars in annual operating costs.

Maersk Line, a unit of A.P. Møller-Mærsk A/S, and MSC are the world’s two biggest container-shipping operators in terms of capacity.

The Triple E is the biggest container ship in the world and costs around $150 million each. Industry executives say the mammoth vessels, which can carry in excess of 18,000 containers, are attractive because of their cost-savings potential. The vessels steam more slowly than most other tankers to save fuel, and are mainly deployed on the benchmark Asia-to-Europe trade route. They can cut operational costs by 20% on each container shipped, compared with the average cost of existing vessels with less fuel-efficient engines.

Scorpio, based in Monaco and New York, placed an order for three Triple E’s with South Korea’s Samsung Heavy Industries Co., while Bank of Communications, known as BoCom, ordered two from Daewoo Shipbuilding & Marine Engineering Co., another Korean yard, one of the people involved in the deal said. Last year, BoCom and Chinese peer Minsheng Financial Leasing Co. ordered a combined six Triple E’s that will also be leased by MSC. All ships will be deployed on the Asia-Europe loop, the world’s busiest trade route, and will be delivered between 2015 and 2016.

The container-shipping industry has been marred by low freight rates over the past few years with analysts estimating the available capacity running around 30% above demand. In a recent interview with The Wall Street Journal, Maersk Chief Executive Nils Andersen said it would take around four years before supply and demand are balanced.

“Despite the overcapacity, which is estimated at around 15% in the Asia-Europe loop, the Triple E orders come at a good time because of the current low prices at yards and their cost-saving potential over time,” said Jonathan Roach, a container analyst at London-based Braemar ACM Shipbroking. “Over the next couple of years, those ships will displace smaller vessels that won’t be able to compete because of higher operating costs.”

Maersk Line has 20 Triple E’s on order, and when deliveries are completed the 2M will have 31 ultra-large container vessels, enough to operate three Asia-Europe loops with around 10 operating in a loop. The ships will mainly carry Asian exports ranging from electrical appliances, clothes and shoes to furniture and fresh produce.

“The network sharing and cost savings will give them a clear advantage over competitors,” Mr. Roach said.

Container ships carry more than 95% of the world’s manufactured goods.
Source: Wall Street Journal