2020 will see a surge of ultra large container vessel deliveries, with the potential to impact supply and demand and freight rates
The global ultra large container vessel (ULCV) fleet is growing. In 2018, a peak in the delivery of ULCVs was reached, with 48 newbuilds adding a huge 847,150 TEU to the global fleet, according to VesselsValue. And the deliveries were still going strong in 2019, with 40 new ULCV delivered, totalling 740,777 TEU at the time of writing. Two more vessels are set to be delivered by the end of the year.
In 2020, 30 vessels are set to be delivered, followed by 26 and 20 over the next two years. A total of 1.47M TEU is set to be delivered between 2019-2022.
One of the latest orders comes from Evergreen Marine, which placed an order for 11 23,000-TEU container ships from South Korean and Chinese yards.
The orders are a breakthrough for China, with Hudong-Zhonghua and Jiangnan Shipyard constructing two vessels each. BRL Consultants chief executive Barry Luthwaite comments: “Evergreen had been widely tipped to choose Imabari in Japan to construct some [vessels] on a charter basis from its shipowning wing, Shoei Kisen Kaisha. The orders show how far China has come against big rivals in South Korea and Imabari for export business.”
The remaining seven vessels were awarded to Samsung, which has almost completed a G-series of ULCVs for the Taiwanese owner.
A ULCV is defined as having 18,000+ TEU capacity, but the influx of these mega ships raises concerns. As these larger ships are cascaded into the Asia-Europe trade, current vessels on this route are then cascaded on to other trades, with a knock-on impact on supply and demand and rates.
According to Xeneta’s indices – which use crowd-sourced shipping data covering over 160,000 port-to-port pairings with over 110M data points – long-term rates have followed a pattern of decline since Q3 2018, excluding an unexpected rise in May.
The potential impact of Evergreen’s order is explained by Xeneta chief executive Patrik Berglund: “There are a number of factors creating unease. Some are of the industry’s own making, while others certainly are not. For example, we have Evergreen pushing ahead with an order for 10 23,000-TEU vessels in a market that is already awash with overcapacity. This is understandable when The Ocean Alliance, of which it is a member, wants to challenge 2M for ULCV strength – and therefore economies of scale – in an ultra-competitive market, but it does not help rebalance the supply-demand scales.”
The delivery of the ULCV will clearly have an impact on the container ship alliances. Currently, 2M (consisting of Maersk and MSC) is the largest when it comes to ULCVs, with 71 ships that fall into this category. According to VesselsValue, this will swell to 76 (with an overall tonnage of 1.3M TEU), once MSC’s order for five mega ships is completed.
But the Ocean Alliance (COSCO/OOCL, CMA CGM/APL and Evergreen) is poised to overtake 2M when it comes to ULCVs. It currently has 62 ULCVs in its overall fleet. This will soar to 96 with an injection of 24 new vessels from CMA CGM and 10 from Evergreen, boosting tonnage from 1.1M TEU to 1.8M TEU.
THE Alliance (Hapag-Lloyd, ONE and Yang Ming) currently has no ULCV newbuildings on its books, with a current total of 744,780 TEU.
There are some notable ULCV orders on the horizon, among which one of the most important is CMA CGM’s nine 23,000-TEU container ships, which will be the largest such vessels powered by LNG.
These new vessels will join the Group’s fleet in 2020 on the Asia-North Europe line and will be instrumental in opening up the use of LNG for other container ships as an LNG bunkering infrastructure is developed for these mega vessels.
Based on their experience working to deliver engines, fuel cargo tank designs and supply and control systems for CMA CGM’s order, WinGD, GTT and Wärtsilä are all offering their services to shipowners and operators looking at LNG power.
WinGD general manager Volkmar Galke says: “The container giants realise that if they want to transport goods in an environmentally sustainable way, LNG is the best route to take. LNG is the fuel that everyone in the container ship market is talking about.
“It really is the only logical choice at the moment; giant vessels have a completely different demand on the volume – they need to be bunkering 18,000 m3 of fuel. Which other alternative fuel is available and scalable in this amount except LNG?”
Cyprus-based Synergy Marine is a financial investment venture operated by Andreas Papathomas which is investing in Panamax container ships. He told the audience for the container panel at the 12th Annual Capital Link Shipping & Marine Services Forum held during London International Shipping Week (LISW), that the container ship industry has completely altered due to the influx of the mega-size ships.
“The challenge is to find profitability,” he said. “That, in our view, lies in focusing in the Panamax and smaller vessels that are priced at scrap and where the depreciated value of the vessel is significantly greater than the pricing of today’s [value]. We are making a decent profit, without generating enormous revenues.”
Speaking on the same panel, VesselsValue’s chief operating officer Adrian Economakis agreed with Mr Papathomas, citing the potential for asset appreciation from such a low base: “Values in the Panamax sector have risen 18% in the last 12 months to US$20M. This is still a long way below the long-term median of US$29M. According to the VesselsValue forecast model developed with Viamar of Norway, we expect Panamax values to climb by 53% by 2021.”
According to VesselsValue, the estimate for a five-year-old Panamax container ship is currently US$20.3M. There are 718 Panamax container ships in the container ship fleet. This sector has been overtaken by the new Panamax container ships (also known as Neo-Panamax) which cover vessels built to the beam of the new Panama locks.
A niche player investing in the new Panamax container ships is Seamax Capital Management, whose managing partner Cao Deambrosio explained that these vessels were the new workhorses of the global fleet. The company operates 10-to-15-year-old vessels fixed on long-term charters grossing around US$20M per annum, he said. This strategy has made a return on investment of 20% per annum. “We have found this to be positive and an area we will continue to focus on,” said Mr Deambrosio.