misinformation

NEWS SHIPPINGIs bigger that much better?In less than five years, the average sizeof vessel deployed in the world’s linertrades has risen from 3,000 TEUto over 3,600 TEU. Meanwhile, the largestbox ship in service has increased to19,224 TEU (MSC OSCAR-class), a jumpof almost 24% on the 15,550 TEU vesselin operation in 2010.The situation is continuing, withOOCL and Mitsui OSK Lines bothordering units able to load over 21,000TEU. Ships with capacities of 24,000-plus TEU are likely to be deployedwithin the next four years.“We have been working closelywith Lloyd’s Register for some timenow and can confirm that there is notechnical reason why ships cannot goabove 20,000 TEU,” said Andrew Penfold,project director at Ocean ShippingConsultants.Jesper Praestensgaard, a senior advisorat Boston Consulting Group and chairmanof shortsea and feeder operatorUnifeeder, certainly thinks vessels willget larger. “The combination of a commoditisedindustry, inelastic demand andstructural overcapacity means carriers’focus is on costs,” he explained.“Since their [ocean carriers] most significantcost is their vessels and the capitaland operating expenses that go withthem, there is a huge incentive for themto build bigger ships. At least this waythey can compete, as they get higher levelsof fuel efficiency and lower slots costs.There is also funding available.”Hans Augusteijn, head of network andprocurement in North Europe for MaerskLine, dismissed the idea that it was allabout having the biggest ship in service.“We assess in detail the markets we tradein, and our new 19,600 TEU ships forthe Asia/Europe/Asia trade are designedto accommodate the growth that we seetaking place in the market,” he asserted.Big ships, big costsNonetheless, a mood change might betaking shape and the appetite for bigships could be slowing. Several speakersat TOC Europe alluded to various diseconomiesof scale occurring and to oceancarriers as unfairly taking advantage ofall of the cost savings and pushing all ofthe additional expenses and operationalchallenges into other sectors of the supplychain.Neil Davidson, senior analyst portsand terminals at Drewry Maritime Advisors,referred to a “tipping point” beingreached. “Shipping lines are drivingdown their sea transport costs and savingmoney through the deployment of thesebigger ships,” he said. “But this is generatingsignificantly higher costs in otherparts of the supply chain, particularly inports and terminals.”According to a white paper publishedby the International Transport Forum(ITF), mega ships could add as muchas US$400M in annual costs across thetransport chain, with roughly a thirdrelated to equipment, a third to dredgingand a third to port infrastructure andport hinterland activities.Furthermore, the report warned thatthe situation would only get worse, withthe introduction of even larger containervessels resulting in only marginalcosts savings for the carriers, but “phenomenal”infrastructure upsizing costselsewhere.Scaling backMoreover, the ITF, which is a unit ofthe OECD, stressed that big ship scaleeconomies were easing. “Doubling themaximum containership size over thelast decade has reduced total vessel costsper transported container by a third,”stated the authors of the report. “However,these cost savings are decreasingwith ever-bigger ships, and are four tosix times smaller this time round than inthe previous round of upsizing.”They argued that at least 60% of costsavings being realised from the deliveryof the latest large series of vessel wererelated to the design of more efficientengines than to scale economies per se,and that the latter would reduce further,particularly as high utilisation levelsThe recent TOC CSC Europe conferencesaw a heated debate about growing shipsizes, while an ITF report warns of costincreases from their usewere also necessary to maximise savings.Turning to the port interface,Drewry’s Davidson questioned the abilityof ports/terminals to “step up” to theproductivity levels required. He repeatedDrewry’s view that to go from the current3,000/3,500 moves a day to 6,000will require “a revolution and not just anevolution in handling technology”, andautomation is no “magic bullet” in thisregard.Productivity concernsMaersk’s Augusteijn was also concernedabout terminal productivity and increasingport time. “Improving cargohandling performance levels in ports iscrucial to us achieving the economiesof scale from deploying bigger ships andpassing these savings on to the rest of thesupply chain, but this is not happening,”he argued.While he acknowledged improvementsin berth productivity had takenplace, he stressed that this had been ata slower pace than the increase in vesselsizes. As to moves per crane hour, theexecutive alluded to this benchmark asnot having changed in the past four yearsor so.“Worryingly, it means vessels arespending longer in port and this is notwhat I had expected to happen,” he said.“While we do not have a golden bulletthat will solve the issues at once, weknow we have to help the process andthat means making sure our ships arriveon time, that stowage plans are betterorganised and all information is sharedso that planning and terminal operationscan be geared up ahead of the vessels arriving.”Rewarding performanceMaersk is also putting in place performance-relatedcontracts at some facilities.Essentially, this involves the line sharingsome of its cost savings from slowsteaming with the terminal operator/stevedore that turns the ship quickly, but,as Augusteijn said, then “sharing in thepain” if vessels have to speed up becauseof poor performances.The deployment of ULCVs are leadingto immense challenges across thewhole industry and never before has thebalance between cost savings and costincreases in the container supply chainbeen so close. That so-called tippingpoint is fast approaching. June 2015 21