Last year was, of course, dominated by the launch of Maersk Line’s first 18,270 teu Triple-E class vessel, Maersk Mc-Kinney Møller, and the subsequent deliveries of its sisterships. These had the effect of keeping the Danish company ahead of its peers and at the top of the carrier rankings. However, the announcement of the order of the 20 Triple-Es came at a time – early 2011 – when the container shipping industry was reeling from a rate war that had been sparked by growing structural overcapacity.
Maersk executives were at pains to stress that, having ordered the Triple-Es, the line would not need to place any further orders for another five years. There is little in the development of the trade since then, in terms of volumes, that suggests it will have to revise that opinion. In fact, Maersk has been exemplary in trying to limit the damage to freight rates caused by the increase in capacity, especially on the highly vulnerable Asia-Europe trade where rates have become so volatile over the last couple of years.
In a speech at the recent TOC Container Supply Chain conference in Singapore, Tan Hua Joo, executive consultant at Alphaliner, explained how the frequency of general rate increases (GRIs) has grown over the past few years. In 2010 and 2011 there were five GRIs in each year, which grew to seven in 2012 and then to eight in 2013. Furthermore, the variation in the GRI applied has also grown. Before 2012 an Asia-Europe price increase was around US$250 per teu. But in 2013 the lowest increase was US$250 per teu and the highest was US$775 per teu. That variance became more extreme last year, when the lowest increase was US$350 per teu and the highest US$950 per teu.
The major carriers have, understandably, been very concerned about the overall capacity deployed on the trade. But at the same time they have been faced with rising bunker costs, which have crippled most attempts at profitability. Alan Murphy, chief operating officer of industry analyst SeaIntel Maritime Analysis, says that bunker costs have effectively doubled in the past six years, with the price of heavy fuel oil rising from under US$350 per tonne in 2007 to over US$650 per tonne in 2012. Although this dipped slightly last year, few believe that prices are ever likely to return to their previous levels.
In response, carriers have introduced slow steaming almost completely across the board. Mr Murphy says that this, in combination with the introduction of larger vessels sizes, has meant that the cost per teu in terms of fuel to transport a container from Asia to Europe has remained largely at the same level over the same period. If anything there has been a slight decline, and presently it rests at around US$200 per teu – a level slightly below that of 2007.
The new generation of ultra-large container vessels (ULCVs) have changed carriers’ cost base to enable them to cope with rising fuel costs. The cost-base adjustment is not a result of size alone; the design of the vessels, from engines to hullform, has been made with the sole aim of reducing fuel costs. But the fact that the vessels are substantially larger has created the rate volatility which shows little sign of abating.
Additionally, because those carriers that have invested in ULCVs have such a commanding cost advantage over those that have not, the have-nots have been forced into ordering tonnage of a similar dimension or face having to leave the major trades altogether. Mr Tan describes the carriers as being in a war of attrition. “They are employing a strategy in which a belligerent side attempts to win a war by wearing down its enemy to the point of collapse through continuous losses in resources and material.”
Thomas Riber Knudsen, Maersk Line’s chief executive for the Asia-Pacific region, says: “There is a clear incentive to invest in larger ships, but when everybody does this we get overcapacity. In 2013 another 11 per cent capacity was added to the global fleet. Supply actually grew by 6 per cent, compared with a demand growth of 4 per cent, but this only occurred because last year was the biggest year in history for ships being recycled. At least ship recycling is going up.”
While Maersk continues to hold the top spot, the gap between it and its nearest competitor, Mediterranean Shipping Co (MSC) has been closing in recent years. And last year was no different. The Danish carrier began taking delivery of its Triple-E class vessels from the middle of the year, but balanced that out by redelivering chartered tonnage to its owners. It thus effectively kept its fleet capacity at the same level, while improving the potential for profitability: charter day rates tend to be more expensive than vessel mortgages, and newer vessels are almost always more cost effective to operate.
So while, on the face of it, Maersk’s order for 20 Triple-Es appeared to push it well ahead of the pack, the way that the other carriers have responded with their own ULCV orders, combined with Maersk’s prudent redelivery of chartered tonnage, mean that the pack is actually set to close the gap.
That said, Mr Murphy suggests that while fleet size has traditionally mattered to container operators, the mentality may be beginning to change. The AP Møller-Maersk Group’s container shipping business is not just about one brand. Despite the closure of its own headquarters in Antwerp in 2012 and its subsequent removal to Copenhagen, Safmarine continues to operate as a separate brand and as a north-south specialist. MCC Transport and Seago Line are separately branded, intra-Asia and intra-Europe operators respectively. And next year will see the re-launch of the SeaLand name as the company’s dedicated intra-Americas operator.
Taken together, these brands operated 2.6 million teu of capacity at the end of 2013. According to Mr Murphy, however, Maersk Line itself operates 2.35 million teu of capacity, which is less than than the MSC fleet of 2.4 million teu capacity.
“This rather suggests that a rethink has been going on in Copenhagen and that the focus is not about being big but about being profitable. They could make Maersk the largest carrier in the world tomorrow, by returning the other brands to Maersk Line. But the fact that they do not indicates there are different priorities,” he says.
It will be interesting to see what Maersk’s next move is, in terms of ordering, because the current orderbook indicates that MSC is going to continue catching up with it over the next two years. According to Alphaliner, Maersk has nine Triple-Es due for delivery this year, and seven more in 2015, which will see its 20-strong order completed. An option for a further 10 Triple-E vessels was cancelled last year.
It also has two post-Panamax vessels due to be delivered this year, but other than those and the remaining Triple-Es, there are no deliveries outstanding for Maersk. It is a very different picture at MSC, which added 7 per cent to its overall slot capacity last year through the addition of 146,700 teu, according to Alphaliner data. This was the largest increase of any carrier. However, while its new deliveries in 2013 amounted to 116,600 teu, it also scrapped nine owned units, which represented 20,500 teu, and took on 50,600 teu in new charters.
MSC has three super post-Panamax vessels in the 6,000 teu-10,000 teu range and two vessels of over 10,000 teu to be delivered this year. These will be followed by a marked escalation in deliveries next year, when it will have 17 super post-Panamax and 10 ULCVs delivered, which will be followed by another eight super post-Panamax vessels in 2016.
Third-placed CMA CGM also has a sizeable orderbook, with one post-Panamax and eight super post-Panamax vessels coming to it this year, followed by three sub-3,000 teu, eight super post-Panamax units and six ULCVs in 2015, and a further seven super post-Panamax units in 2016.
Across the global cellular fleet the additional capacity coming into the trades this year is alarming. At the beginning of the year, Alphaliner calculated that more than 1.6 million teu of new capacity was due to be delivered in 2014, in what it said could turn out to be a record year for new container ship deliveries.
According to the liner shipping analyst, new ships to be delivered to the top 20 carriers, including units for non-operating owners who have already fixed charters with top 20 carriers, account for 1.28 million teu and represent 76 per cent of the new vessel deliveries due this year. A further 315,700 teu will come in as tonnage due to be delivered to non-operating owners, that has yet to have its charters fixed. Alphaliner said it expected most of that capacity to be taken up by the top 20 carriers. On top of that, some 85,000 teu will be delivered to carriers outside the top 20.
In terms of percentage increases, Singapore-based Pacific International Lines (PIL), a key player in the intra-Asia trades which also dabbles in the deepsea trades, saw the highest fleet growth last year, at 26 per cent. The beginning of this year saw it join with China Shipping Container Lines (CSCL) and United Arab Shipping Co (UASC) to launch a transpacific service, while it has also been at the forefront of developing services between Asia and Africa. Overall, its fleet grew by 76,500 teu, of which 42,200 teu came in the form of newbuildings and 34,300 teu was chartered vessels. The combined increase saw the company jump three ranking slots to become the 15th largest carrier, overtaking K Line, Hyundai Merchant Marine (HMM) and Zim Integrated Shipping Services.
Whether it can hold that place remains to be seen. HMM has, much like its South Korean compatriot Hanjin Shipping Co, had especially severe financial difficulties in recent months, but it appears that the two lines have had little trouble in convincing investors of the need to expand their fleets, said Alphaliner. “Although both South Korean carriers were forced to embark on restructuring exercises and asset disposals to raise cash, they had no difficulty in securing charter deals for their new tonnage needs.
“Hanjin Shipping confirmed in early December a charter for four 9,040 teu ships from Turkish shipowner Ciner Ship Management. The vessels will be delivered in late 2015 and at the beginning of 2016.
“HMM also confirmed in mid December that it will charter six 10,000 teu units from UK-based Zodiac Maritime Agencies, for delivery from early 2016.”
Only three lines – NYK Line, K Line and Zim – will not take any new deliveries this year. Recently, however, NYK Line finally joined the ULCV club after it announced that it had arranged time-charter agreements for eight 14,000 teu vessels, which will be built at Japan Marine United Corp’s Kure shipyard and will be delivered from February 2016 through to January 2018.
Strictly speaking, NYK Line has already been an operator of ULCVs, having taken four of Orient Overseas Container Line’s (OOCL’s) 13,200 teu newbuilds on charter. It said these would be redelivered to the Hong Kong-based carrier.
Back at the top end of the table, the growth in capacity this year will be led by Taiwanese line Evergreen Line, which will continue its capacity expansion programme in 2014. Eighteen new vessels in the 8,000-14,000 teu bracket are due to be delivered, representing a total capacity of 195,000 teu. These will follow the 19 newbuilds, representing an astonishing 162,000 teu, that Evergreen took delivery of in 2013. This was offset by the redelivery of chartered tonnage, which meant it saw its fleet grow by 123,300 teu – an increase of 17 per cent.
It also recently concluded a charter deal with an as yet unnamed owner for seven more 14,000 teu vessels, which are currently under construction and are due to be delivered in 2015 and 2014. This is on top of the charter deal with Greek owner Enesel for 10 14,000 teu units, which are in the process of being delivered through to this September.
However, the really dramatic changes in the top 20 rankings are likely to take place towards the end of this year and into 2015, when CSCL and UASC begin to take delivery of vessels to challenge the Triple-Es. The 10 vessels that are on order for CSCL will take the crown from Maersk Mc-Kinney Møller for being the world’s largest ship, as they are due to have nominal capacity of 18,400 teu. Delivery of the first of these is expected by the end of this year, with another three due for delivery next year.
Meanwhile, UASC recently announced that it had exercised its final option for an additional 18,000 teu vessel with Hyundai Heavy Industries in Korea. This brings its total orderbook to 17 ships – 11 14,000 teu vessels and six 18,000 teu vessels, representing an investment of over US$ 2 billion – to rival Maersk’s Triple-Es.
One final factor is likely to substantially alter the landscape later this year: the impending take-over of Compañía Sud Americana de Vapores (CSAV) by Hapag-Lloyd. If this goes through, it will see what are now the twentieth and sixth largest carriers become the fourth largest carrier, just behind the P3 Network partners. Hapag-Lloyd’s newbuilding programme of 10 13,400 teu units is almost complete, while CSAV has seven 9,300 teu units under construction. CST
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