ULCVs

Carriers accelerate drive for ship scale economies

Carriers accelerate drive for ship scale economies

ULCVsDrewry’s research shows that the average size of vessel deployed between Asia and North Europe now exceeds 10,000 teu for the first time. Orders for Ultra Large Container Vessels (ULCVs) have been quiet recently, but the pace of growth in vessel sizes will continue to outstrip cargo growth for the foreseeable future.
K Line’s confirmation last week of an order for 5 x 14,000 teu highlights two key issues. Firstly that the ocean carrier drive for greater economies of scale is far from over, and secondly, that the recent devaluation of the Japanese Yen has made the country’s shipyards competitive again.
The ships are scheduled for delivery in 2015. Although their destination has yet to be defined, they will most probably join the CKYH alliance’s other ULCVs operating between Asia and North Europe, where 38 vessels averaging 10,543 teu are already deployed in four weekly strings. Yang Ming will add another four 14,000 teu vessels in 2015, and has an option for a further five.
The message is that no one should be under any illusion that the current lull in ULCV orders indicates that ocean carriers’ appetite for bigger ships is over. They just don’t have the necessary finances at present to speed up the process. Most ocean carriers lost money again last year, and the prospects for this year are not bright either.
However, it takes a crisis to bring out the cost cutting best of ocean carriers, and the near triple-dip recession since 2008 is no exception. The worse Asia-North Europe westbound cargo growth has got, the faster the drive for bigger ships has become. The 37% increase in average vessel size between 1Q08 and 1Q13, from 7,517 teu  to 10,279 teu, bears no relation to the paltry 6% growth in cargo between the whole of 2008 and the volume forecast for this year.
So, although only 325,680 teu of vessel capacity provided by ships over 10,000 were on order for delivery in 2015 one month ago, compared to 674,318 teu due out this year, and 577,677 teu in 2014 (ignoring the possibility of postponements), much more can be expected. Order slippage will continue, such as three of Hapag-Lloyd’s remaining 6 x 13,200 teu vessels (out of an order for 10) from the second half of this year to the first half of next year, and even that period may not be the last of the delay.
There could even be some cancellations, despite the high cost, such is the parlous state of ocean carrier finances at present. For example, Zim Line cancelled 5 x 12,600 teu ships last week, and has an option to cancel the remaining 4 x 12,600 teu subject to shipyard approval, if it can afford the stated cost. The remaining vessels are currently due to be delivered in 2016.
Interestingly, the chase to keep up with Maersk appears to have abated, although 8 x 16,000 teu vessels have allegedly been ordered by MSC, and CMA CGM already has three 16,000 teu vessels from a hastily converted order. Otherwise, the orderbook currently includes 15 x 14,000 teu vessels, 10 x 13,800 teu vessels, 34 units between 13,000 teu and 13,500 teu, nine units between 12,000 teu and 13,000 teu and 10 units of 10,000 teu.
This means that the average vessel size deployed between Asia and North Europe is set to continue increasing well ahead of cargo growth. The remaining 41 vessels over 10,000 teu due for delivery this year will certainly see to that in the short-term. In the medium-to-longer term, it is possible that a number of 13,000 teu vessels could be deployed in Panama Canal services after the middle of 2015, when its new locks are opened.
The game is also far from over, as at least two carriers are understood to be examining orders for 18,000 teu ships.
In conclusion, many more ships are likely to be cascaded out of the Asia/Europe tradelane during the next couple of years, and their size won’t stop at 8,000 teu.
The speed of change has been remarkable so far, with over 30 ships averaging 9,000 teu already having been taken out of the Asia/Europe tradelane since October through the withdrawal of the CKYH’s Loop 4, the G6’s third loop, and Maersk’s AE9 string, all of which are not being re-instated after the winter season.
The second message stemming from confirmation of K Line’s order last week is that Japan’s shipyards have become competitive again, following a 20% devaluation of the Yen against the US dollar since September 2012. They seem determined to make the most of it too, as the largest vessels built so far are the I.H.I produced 9,300 teu NYK Adonis, NYK Altair and NYK Arcadia, which were delivered to NYK between 2010-11 The largest Japanese-build in the orderbook is the 8,600 teu Hanoi Bridge, from Japan Marine, which is due to be delivered to K Line this year.
Our View
Unless cargo growth takes off between Asia and Europe by 2015, which seems unlikely, it won’t just be 8,000 teu vessels cascaded down into other tradelanes, such as the route between the Far East and ECNA via Suez. Ships of 10,000 teu will be next, so potential ports of call need to gear themselves up accordingly – both in terms of equipment and draught.
Source: Drewry Maritime Research

 

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