New Generation ‘Megaships’ Worsening Overcapacity – Kemp - Maritime and Salvage Wolrd News

By John Kemp

LONDON, Sept 22 (Reuters) – Container transport strains are poised to take supply of a brand new technology of “megaships” over the following two years, simply as the expansion of world commerce is slowing down, contributing to huge overcapacity available in the market.

Megaships, which could be as much as 400 metres lengthy, appear to be right here to remain, not least as a result of so many extra are already on order, the product of excessive gas prices and low rates of interest.

But the development in direction of bigger vessels is just not with out issues particularly for different companies within the transport system and the development may very well be nearing its restrict because the economies of scale related to megaships decline.

Container transport capability has doubled each seven years for the reason that flip of the millennium and can attain almost 20 million twenty-foot equal items (TEU) in 2015 up from 5 million TEUs in 2000.

But for the reason that monetary disaster, container capability has continued to develop quickly, whilst the expansion in freight volumes has slowed, creating a large overhang in transport capability and pressuring freight charges.

Capacity progress is being pushed by the development in direction of bigger vessels. The dimension of container ships has been rising sooner than for some other ship kind based on the OECD’s International Transport Forum.

Between 1996 and 2015, the typical carrying capability of container ships elevated 90 p.c, in contrast with a 55 p.c improve for dry bulk carriers and 21 p.c for tankers (“The impact of megaships” 2015).

The progress in container ship dimension has been accelerating. It took 30 years for the typical container ship dimension to achieve 1,500 TEU however only one decade to double from 1,500 to three,000 TEU.

Between 2001 and 2008, the typical dimension of newly constructed ships hovered round 3,400 TEU however then jumped to five,800 TEU between 2009 and 2013, and hit 8,000 TEU in 2015.

MEGASHIPS

Both the typical dimension of latest container ships and the utmost dimension is ready to proceed rising over the following 5 years.

Shipping strains have already taken possession of 20 megaships with a capability of greater than 18,000 TEU every and one other 52 are on order, based on the OECD.

The largest ship up to now delivered has a capability of 19,200 TEU, however carriers with capability as much as 21,100 have been ordered and shall be in service by 2017.

Megaships are being launched into service between the Far East and North Europe, the world’s largest route by quantity, the place potential economies of scale are biggest, however are having a cascade impact on different routes.

Large ships that previously plied the Far East-North Europe route are being displaced into Trans-Pacific service, and former Trans-Pacific carriers are transferring to the Trans-Atlantic route.

The new technology of ultra-efficient megaships is credited with reducing the price of transport even additional and decreasing greenhouse fuel emissions.

But researchers for the OECD query whether or not megaships are contributing to unsustainable overcapacity and imposing unintended prices on shippers, port operators, freight forwarders, logistics companies and insurers.

FUEL COSTS

The new technology of megaships is the lagged impact of the period of excessive oil costs between 2004 and 2014 and low rates of interest for the reason that monetary disaster in 2008.

Costs within the transport trade could be divided into the capital prices related to the development of latest vessels, working prices, and voyaging prices primarily associated to gas consumption.

Construction prices improve extra slowly than ship dimension. Increasing a container ship from 16,000 TEU to 19,000 TEU cuts the annual capital price per TEU-slot by round $69 based on the OECD.

Larger ships are barely extra operationally environment friendly than smaller ones, with an annual saving of maybe $50 per slot on a 19,000 TEU ship in contrast with a 16,000 TEU vessel.

But the true financial savings are on the gas payments. Megaships are “astonishingly fuel efficient” and really devour much less gas on a voyage than 16,000 TEU carriers, based on the OECD.

With overwhelming price benefits, particularly on gas, and low cost finance available, the upsizing choice seems to have been an easy one for transport strains.

SLOW STEAMING

The new technology of megacarriers has been optimised to avoid wasting gas by voyaging far more slowly than earlier container vessels.

Fuel consumption is expounded to the dice of velocity. If a vessel travels twice as quick it can devour eight occasions as a lot gas. The cube-rule has vital implications for the economics of the transport trade.

When gas costs are excessive, it is sensible to voyage slowly to chop gas payments, even when it means working extra ships to maneuver the identical quantity of cargo. When gas costs are low, it is sensible to journey sooner and use fewer ships.

During the interval of hovering oil costs, container strains instructed captains to chop velocity so as to preserve gas.

The new ships ordered had been particularly designed to function most effectively at slower speeds to make the most of sluggish steaming economies. In truth some carriers are so giant they can not function at increased speeds.

Crucially, sluggish steaming has now been designed into the brand new technology of vessels coming into container service, so it is not going to be simply reversed, despite the fact that gas costs have plunged since 2014.

According to the OECD, a lot of the voyaging price reductions within the new technology of megaships come from their optimisation for sluggish steaming somewhat than from elevated dimension.

“Between 55 and 63 percent (at least) of the savings per TEU when upgrading the vessel size from an early 15,000 TEU design to a modern 19,000 TEU design are actually attributable to the layout for lower operation speeds,” the OECD estimated.

“Cost savings are decreasing as ships become bigger,” the OECD concluded. “A large share of the cost savings were achieved by ship upsizing to 5,000 TEU, which more than halved the unit costs per TEU, but the cost savings beyond that capacity are much smaller.”

UNINTENDED COSTS

The consolidation of container volumes into fewer, bigger megaships is creating challenges for different companies within the freight enterprise.

Insurers are apprehensive concerning the prices if a megaship sinks or develops mechanical issues. Insurer Allianz has warned the trade should put together for losses of greater than $1 billion, and even as much as $2 billion within the occasion of a collision between two megaships (“Safety and shipping review 2015”).

Economies of scale rely on megacarriers being loaded near most capability and spending as a lot time as doable at sea somewhat than in port.

The must fill megaships is one cause that the trade is consolidating into an alliance community.

Shipping strains are additionally adopting the hub-and-spoke system employed by airways to make sure their ultra-large container vessels sail almost full.

Shipping schedules for the megacarriers have been consolidated into fewer sailings every week from fewer ports (about six in North Europe and eight in Asia).

Containers for different locations have to be transhipped, both on a smaller container vessel or by highway, rail and barge.

Schedule consolidation is just not essentially favoured by shippers and freight forwarders preferring common and dependable service (fewer sailings can imply extra concentrated threat).

Port operators, too, have been compelled to take a position closely to draw and deal with the brand new megacarriers. Port channels have to be dredged to larger depths to deal with the deeper drafts of the megaships. Quaysides have to be raised and strengthened to deal with the elevated forces when a megaship is tied up.

The largest downside comes from the scramble to unload a megacarrier shortly so it might probably put to sea once more. The common turnaround time for a container ship is now simply 1 day, and fewer in Asia.

The arrival of fewer vessels however with bigger numbers of containers is creating intense peak time stress on the ports.

Ports want extra cranes, extra extremely expert employees to function them quick, more room within the yard, and the power to deal with extra vehicles, railcars and barges to maneuver the containers inland.

The OECD estimates megaships are growing landside prices by as much as $400 million per yr (one third for further tools, one third for dredging, and one third for port infrastructure and hinterland prices). (Editing by David Evans)