The latest ULCS newbuilding orders come six months after the last placed contracts, indicating a subtle shift in operators’ strategies
The latest newbuilding contracts for ultra large container vessels (ULCSs –13,400 teu or above) were placed in March 2019 by French liner operator CMA CGM. Five 15,000-teu units have been ordered from Jiangshan Shanghai in China for a reported US$130M each. Another five ULCSs have been booked by CMA CGM at Hudong Zhonghua in China for US$110M with delivery commencing in 2021.
The price difference is accounted for by the different specifications. VesselsValue cargo analyst Guy Cooper told Container Shipping & Trade “Of particular interest is the fact that out of the 10 vessels ordered, CMA CGM has decided to hedge its bets by taking two paths. Of these 10 vessels, five are LNG-powered and the other five have been fitted with hybrid scrubbers. The price discrepancy between the individual newbuild contracts ordered is US$20M per vessel.”
The CMA CGM newbuilding orders lift the ULCSs on order to 66 vessels with a total capacity of 1.2M teu (VesselsValue data). CMA CGM already had nine 22,000-teu ULCSs on order before the March 2019. The older order is spread between Shanghai Waigaoqiao Shipbuilding and Hudong Zhonghua. Indeed, the 66 ULCSs on order are from only six owners: CMA CGM, Eastern Pacific Shipping, HMM, MSC, Shoei Kisen (Imabari, Japan), and Zodiac Maritime.
Before this mammoth order was placed, CMA CGM had the third-largest number of ULCSs on the water (23 vessels with a capacity of 359,388 teu). Including the new orders in China, CMA CGM leaps into second place with a 13% share of the fleet (36 ULCSs with a capacity of 581,244 teu), behind Danish giant Maersk (19% share of the fleet).
The CMA CGM ULCS orders represent a landmark. They were placed some six months after the last reported ULCS newbuilding orders, when observers were beginning to think the ULCS newbuilding spree was over. This held out some hope that the container fleet, especially at the larger end, would come back into balance. Trade data provider IHS Markit reported at the beginning of 2019 that volume would grow at 5.5% versus a fleet growth of 3.5% in 2019, and volume growth of 5.3% in 2020 versus a fleet growth of 2.6%. These figures will now be upset by the recent orders.
The question emerges as to why CMA CGM chose that time to order more ULCSs. These vessels reflect a subtle shift in the strategy of CMA CGM and are hugely important for reasons beyond the additional fleet capacity. First, they represent a virtual sovereign agreement between France and China. It should be noted that CMA CGM group chairman and chief executive Rodolphe Saadé signed the agreement with China State Shipbuilding Corporation in the presence of French president Emmanuel Macron and Chinese president Xi Jinping.
As well as the immense goodwill afforded to France from the ULCS newbuilding order, CMA CGM is moving to mesh ever-closer the container shipping operations into a vertically integrated logistics business. There has been no explicit statement to this effect, but its e-shipping portal and around 15 other projects outside of the immediate assets on the water point in that direction. But the biggest indicator is its decision to purchase shares in the IPO of Swiss logistics operation CEVA in 2018.
CEVA covers specialist logistics operations including automobile, clothing, consumer and retail, energy, healthcare and technology. According to the first quarter accounts of CMA CGM, its takeover of CEVA was recorded at US$934.1M, which has been reported as borrowings as at 31 March 2019.
From the CEVA side, it reports that CMA CGM entered into a commitment letter with certain banks, which agreed to underwrite up to US$825M. In February 2019, a new senior secured term loan to refinance its existing US$475M senior loan due August 2025 was finalised.
According to Alphaliner, CMA CGM’s current debt obligations on current and new vessels, plus the acquisition of Containerships in Finland and other expenses could see its debt profile exceed US$9.18Bn in 2018. On the plus side, CMA CGM reports rapid progress taking over control of CEVA. Rodolphe Saadé is now chairman of the board, and the headquarters is being moved from Switzerland to close to CMA CGM’s own headquarters in Marseille. Under a programme called ‘Agility’ CMA CGM is introducing cost controls (cuts) of US$1.5Bn.
In light of these significant commitments by CMA CGM, the ULCS newbuilding orders are not a simple increase in fleet size to claim a new position in the top 10, but part of a much larger logistics role. It allows a greater degree of cross-sell at terminal and freighting level to extract more fees from shippers while offering greater value and capacity.
Looking at the other ULCS owners, Maersk has been the leader in terms of overall tonnage and capacity for so long it is hard to recall a time when the company was not the largest owner. On the ULCS side, its fleet numbers 50 vessels with an average age of fours years old. While there are no new Maersk ULCSs on the orderbook, the current Maersk ULCS fleet has a capacity of 886,580 teu, much larger than CMA CGM’s even with the new orders.
In third position lies Cosco Shipping Lines with 33 live ULCSs. It is awaiting delivery of three 21,237-teu newbuildings purchased from Oriental Fleet International. The Chinese state-owned operator has huge depth in logistics. According to shipping consultancy Drewry, Cosco is now the third-largest container terminal operator after the Port of Singapore Authority (PSA) and Hutchinson Ports. Drewry reports that Cosco’s terminal operations reached 46.1M teu in 2018, a year-on-year growth of 32.2% compared to Hutchinson Ports (46.7M teu in 2018) and leader PSA with 60.3M teu in 2018.
Just outside the medal positions with 21 live ULCSs and another nine mega-ships on order is MSC. These nine 23,000-teu vessels are all due for delivery in 2019 and 2020 from Samsung and Daewoo. MSC is in the 2M alliance with Maersk and will be joined by HMM in 2020. This would create an alliance of 100 ULCSs. The second-largest ULCS sharing fleet will be the Ocean Alliance consisting of 85 ULCSs. In the alliance, Yang Ming was reported to have ordered three ULCSs, but these are not showing on the VesselsValue database and may have been cancelled. This may not be a bad thing, in that the CMA CGM move shows that it takes more than being a member of the big ship club to impress shippers; an operator needs the deep penetration into the logistics sector to reach into the shippers’ pockets.