Impact of Mega Vessels on Shipping
If you’ve been tuning in to the grapevine recently, you’ll have heard about the sharp rate drops concerning trading between the Far East and Europe. You don’t have to look further than the SCFI, the Shanghai Containerized Freight Index, to get an idea of what I’m referring to.
Over the last four months, these rates have plummeted as much as 30%. Maritime world news reports from Alphaliner and Drewry might have you wondering if it’s an issue of raging price wars more than anything else. That’s where they’re wrong. In reality, this is nothing more extreme than the rates adjusting to the “carrier cost” of this trade.
At the heart of the matter, float the mega-vessels—new mega-ships which have been rapidly replacing smaller container vessels for the past half year or so, and continue to do so. The ensuing impact has been enormous on transport chain configurations, costs, port and infrastructure adaptations, and international transport policies. These mammoths load and deliver bigger capacities than ever before, yet they also pose challenges such as congestion, new configurations, and competition within smaller trade lanes.
According to a report recently released by the International Transport Forum, the new mega-vessels are a long-term investment, and the benefits of their use should continue to outweigh the costs. As “the work-horses of the globalized economy”, they’re here to stay and only promise to get bigger: “The largest container ship at this moment can carry 19,200 containers, but ships with capacity of more than 21,000 containers have been ordered and will be operational in 2017.”
Numbers talk, and those costs are substantial. According to statistics gathered by the International Transport Forum, the transport costs concerning mega-vessels are projected to amount to $400 million annually, and that’s not even considering equipment and infrastructure costs. There’s the fear of increased supply chain risks (cargo concentration, limited supply chain resilience, etc.) and the need to revamp public policies to enhance productivity and communication.
- Mega-vessels are proving more cost-efficient regarding fuel. The fuel efficiency of container ships has improved by at least 35% during the past 30 years. A ship’s propulsion consumption is its single biggest cost driver. These modern giants actually consume less fuel, providing notable savings per TEU.
- Bunker Fuel prices also decreased, down 40% compared to December 2014—great news for the shipping industry. Some predict an additional 5% decrease in the near future. Lowering oil prices would also significantly impact cost reduction.
- Mega-vessels can consume half the fuel per container as their older and small counterparts (thanks to improved technologies, slow-steaming methods, and so on), while halving insurance and staffing costs. You can enlist the same 20-odd-member crew required aboard a smaller ship… with at least three times the cargo.
Unfortunately, the utilization of mega-vessels is dropping—from 95% down to 85%--due to weakening economic developments. This does reduce the effect of overall cost reduction. But I believe this lull won’t last, because it never does; the global financial crisis and increased fuel costs was what spurred the shift to mega-vessels in the first place. Predictions were made about significant cost savings on the FE-EU trade, and these continue, expanding far beyond the classic Asia-Europe routes. Other trade lanes are sure to show cost reductions as the mega-vessels currently in use will cascade down to the lower volume trade. From the Panama Canal to Nicaragua, nations are expanding their canals and routes to accommodate megaships.
The world’s biggest container ships? For now. Cost-effective? Yes, actually. The statistics are already beginning to back up that claim. Mega-vessels won’t be disappearing anytime soon.
For now, bigger is better.