Larger and more efficient ships the answer of liner operators to declining revenues says Dynamar

Dynamar has issued the 12th edition of its annual Top 25 Container Liner Operators publication. It offers an exclusive insight into world’s largest container shipping companies, their histories, natures, characteristics, developments, strategies, relationships and performances.

Cost reduction, in the form of ever-larger less fuel consuming and more efficient ships has been the answer of many of the Top 25 container liner operators to their constantly declining revenues. Under the stagnating markets, as it has been the case for a number of years now, the paradox is that this growing fleet of increasingly bigger leviathans exacerbates over-capacity.
Over-capacity has a detrimental effect on rate levels, inducing a further need for cost reduction … and there we go again! The present largest operating ULCS (Ultra Large Ships of over 10,000 TEU) is one of nearly 19,000 TEU just commissioned by China Shipping.

MOL and OOCL are said to be negotiating 20,000 TEU monsters, while 22,500 TEU up to even 24,000 TEU goliaths are on the drawing boards of some classification societies.
All sixteen of the Top 25 carriers nowadays operating on the Europe-Far East run (ZIM has pulled out), world’s largest deepsea trade, have acknowledged the need of coming together to fill the 250 ULCS they were deploying by early December. The names of the four groupings have quickly become familiar to everybody involved in the movement of goods by sea between the Far East and Europe and on the Transpacific and Transatlantic routes.

Top 20 five-year main Performance and Financial parameters

Note: Top 20 carriers are, in alphabetical order: APL, China Shipping, CMA CGM, Coscon, CSAV, Evergreen, Hamburg Süd, Hanjin, Hapag-Lloyd, Hyundai, “K” Line, Maersk Line, MOL, MSC, NYK, OOCL, PIL, UASC, Yang Ming and ZIM. Includes estimates where info may have been unavailable

Big ship shivers
Back to the ULCS: effective 1 December, 261 (to be precise) ships larger than 10,000 TEU were operated by sixteen of the Top 25 carriers, while another 143 units were on order. Their capacities range between 10,000 TEU and around 19,000 TEU. The average nominal capacity of all existing and coming ULCS is 13,500 TEU.

It is a fact that, with 130 units, the 13,000/13,999 TEU-ship can be considered the present working horse of the long haul East-West trades, making up for 32% of all ULCS and capacity. However, it is amazing how fast the segment of vessels larger than 18,000 TEU is growing.

When Maersk Line ordered the first ten of ultimately twenty 18,300 TEU Triple-E class vessels in early 2011, the Danes may have thought (once again) to have taken a decisive lead. Not really! Today, the 18,000 TEU fleet counts 43 vessels, of which 30 still to be delivered over the remainder of 2014 and into 2017. What’s more, six ships with a stated capacity of over 19,000 TEU have meanwhile been signed for. In addition to Maersk Line, just three carriers are responsible for this 18,000+ TEU deluge, in part supported by or may be even induced by “new capital”: China Shipping (5 units), MSC (18) and UASC (6).

The almost excessive number of ULCS planned for 2016 delivery is sending shivers through the industry: 65, having a capacity of nearly one million TEU. This is equal to a share of 5.4% of the existing container vessel fleet, of which 1.3% was in lay-up on 1 December. Another one ULCS per week can be looked forward to in 2016: 51 vessels/700,000 TEU nominal capacity. A lot of economic recovery over the next two years will be required to digest them all.

Bunker prices at which the various phases of Slow Steaming were introduced (indicative)

Considering the Top 25 carriers’ overall quite miserable financial results, their desire to deploy as many maximised-efficiency ships as can is everyway understandable. What may further help is the falling prices of crude oil, which earlier this month reached their lowest level since August 2009.

In week 50, in Rotterdam USD 323 was charged for one ton of IFO 380 Cst. This compares to USD 725 in March 2012. Among the positive effects for carriers is the fact that the application of Bunker Adjustment Factors (BAF) is usually lagging behind. All carriers having reported nine-month 2014 financials are referring to improved results because of lower fuel prices.

However positive the much lower oil prices may seem, they could well present a perhaps unexpected problem. Carriers have clearly stated having every intention to continue slow steaming as is, not at least as merchants have become used to it and adapted their supply-chains. But if bunker prices continue falling, the tipping point at which the up to four (in a North Europe-Far East sling) extra ships could no longer be financed from fuel savings will be nearing fast. Reduced revenue from BAFs would only contribute to that. Consequently, the number of ships in lay-up, something costing money too, would rise dramatically, in the ULCS category in particular.
Source: Dynamar BV