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Delegates attending the TOC Container Supply Chain event in London yesterday were warned that container terminals needed to “lift their game” to cope with the latest ultra-large 16,000-18,000 teu containerships being deployed on the Asia-Europe tradelane.

Speaking at the Shipping Watch seminar, Andrew Penfold, of Ocean Shipping Consultants, said pressure on terminals would increase and that any negatives could lead to some ports being dropped and cargo transhipped.

Moreover, Mr Penfold said it was “no technical jump” to building ships of up to 24,000teu, with a length of 430 metres and a beam of 62m, so terminals also needed to begin preparing for the arrival of these behemoths.

Following a lull in vessel ordering, he thought it was “extremely likely” that a new round of orders for ULCs could begin by 2015 or 2016 from carriers obsessed with driving down costs still further.

Whether these newbuild orders would be for ships 24,000teu in size remains to be seen, but the history of containerisation tells us they will eventually be built.

A previous speaker, Martin Dixon, head of research products director at Drewry transport consultants, said it was “all about costs” on the major tradelanes of the world, and that this was the main driver for ocean carriers that had failed so far this year to lift average freight rates to sustainable levels, despite raft after raft of GRI announcements.

Mr Penfold suggested that this “one-tracked” view by carriers of cost reduction was a “defence mechanism”, while Mr Dixon added that there was now less correlation between normal supply and demand factors and freight rates.

For example, in 2013, capacity had been tightened by judicious carrier management, including blanked sailings, yet freight rates still fell and remained stubbornly low – a situation Drewry anticipates again this year.

As one would expect, the Chinese veto of the P3 alliance was the main focus of attention at the session.

Anthony Woolwich, a partner at law firm Holman Fenwick Willan, said further clarification of China’s Ministry of Commerce decision to block the P3 without allowing an appeal was necessary before making a full analysis of the ruling; but it was the first example of a heavy-handed reaction by regulators to container line alliances which had hitherto been dealt with sparingly.

Some speakers believed that far from alliances being dead as a consequence, they were here to stay. Indeed, there is speculation that the world’s biggest carriers may revisit the vessel-sharing proposal with a P2 proposal that would reduce the 47% market share dominance of Asia-Europe that motivated the Chinese authorities.

Cas Pouderoyen, senior vice-president global ocean freight at Agility, said there were a number of positives for shippers from carrier alliances, suggesting more direct calls and fewer carriers required as two examples.

He said Agility, which ships 650,000teu a year as an NVOCC, needed to make rate deals with only one or two carriers per alliance to be sufficiently covered.

Although antitrust laws forbid any discussion on rates, Mr Pouderoyen said, he knew that load factors and slot utilisation were key drivers in how shipping lines made decisions on upholding GRIs, and that this was visible to their vessel-sharing partners.

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  • Ricky Forman

    June 25, 2014 at 3:50 pm

    Carriers continue to focus on costs rather than income, it could be argued they only have themselves to blame as risk management tools are available to carriers to hedge their spot exposure and therefore mitigate this risk. Its time they stopped playing the same record over and over again expecting to hear a different song!

  • Andy Lane

    July 09, 2014 at 3:43 am

    No doubt 24,000 TEU vessels (or larger) will come, but it is extremely doubtful that they will be ordered within a couple of years (from now), regardless of whether they can be physically built or not. To gain any significant cost advantage (and agree that it is now a low-cost game), such vessels would need to be 85%+ utilised year round, else they do not offer any true cost advantage, and merely become liabilities, as well as further tilting the supply/demand (im)balance.

    One of the benefits of P3, was the ability for the partners to reach higher utilisation levels on the present largest container vessels. I would doubt whether any other alliance has the scale or market share to match that (for 18,000 TEU ships), let alone anything larger. Historically (through-out periods of 10%+ year-on-year demand growth), the cycle of large step-ups in vessel size has been every 6-7 years, so we might then be looking at 2020.

    So long as excess capacity exists in an over-fragmented industry, then “controlling” revenues is very difficult to achieve, not to say that it should be completely ignored either. It is far easier to reduce costs, over which a liner has far more control. Continuing to simply build more large vessels cannot be the short/medium term solution in the low-cost game. Most liners will be able to reduce costs by further focusing on their networks and asset deployment, through further optimising these, which is precisely what the profit-leaders have done and are doing.

    No doubt that Terminals need to improve their service offerings, it is however premature to scale up facilities for larger vessels right now! The Terminal’s focus needs to be on the speed of vessel turn-around, to facilitate lowest cost networks for the Customers.

  • Charles de Trenck

    July 10, 2014 at 2:48 am

    The ships will come not only because or when they are needed in market demand terms, which on that basis might be a good while longer, but also on the back of financing structures available. So, for instance, if we go into a tight finance environment for a few years and asset finance is tight then little will get done on new vessel types. But, if, say, China decides to get back to near-zero financing as it did a couple of years ago, then when it does it could want to experiment with new vessel types based on proposals showing low-cost financing on something with the best economies of scale makes sense. Of course, this would be pushing it. But something along these lines in 5-10 years is certainly very possible. The logic is … the only way out is up. Whether it is global debt or bigger ships. And just like older debt will have to be written off, some ship types that could have lasted longer will have to go as well. Currently we can watch what happens with the 19,000teu vessels.