Container shippers are unleashing a wave of titanic vessels on the oceans
during the biggest dip in global trade since World War II. The trend could keep
sea freight rates depressed well into 2010. That's good news for their
customers, the millions of businesses big and small that import parts and
products from overseas. But it's likely to spell pain within the shipping
industry itself and could precipitate consolidation as smaller players are
pushed out.
Jumbo vessels can
result in great economies of scale if shippers can fill their giant holds. The
jumbo vessels — many longer than three football fields — carry everything
from strawberries and tea to iPods and motorcycles, for thousands of customers
at once. The economies of scale can be great if shippers can fill their holds.
The MSC Daniela is a glimpse of the future. The size of an aircraft carrier,
the ship completed its maiden run from Asia to Europe this month packed with
13,800 containers, or equivalent units, each big enough to contain all the
contents of a three-bedroom house.
Thirty-five ships of Daniela's scale are scheduled to hit water in 2009,
doubling the number floating today. They'll make up roughly a quarter of the
net increase in container capacity on the high seas. The Asian companies that
make up 16 of the top 20 container shippers are also ordering the ships, led by
China's Cosco Container Lines with 24. By 2013, some 200 ultralarge ships will
be in service around the world.
Meanwhile, a ship capable of fitting 22,000 containers has been designed by
South Korea's STX Shipbuilding Co.
Shippers are eager to avoid partially filled vessels at almost any cost.
"To fill their big boats, these guys will cut their price to any level for
customers," said Dirk Visser, an analyst at Dynamar NV, a Dutch
consultancy.
With overcapacity and a drop in trade, the bottom recently fell out on
shipping rates. The rate for shipping a container from Asia to Europe, the
world's busiest trade lane, has fallen to around $300, one-tenth the cost of a
year ago, even as some shippers cancel regular runs. Some ships have gone so
far as to take containers free. The only cost to the shipper is roughly $500 in
fuel and transit fees, which are assessed on all containers.
According to the most recent data available, the U.S., Japan, China and the
European Union all suffered 10% declines in exports in November, auguring a
bitter 2009 for global trade. Yet shipping companies aren't expected to cancel
any orders for new ships, allowing the global fleet to increase by over 12% —
way ahead of expected demand.
Source: Miller, John, “The Mega Containers Invade” Wall Street Journal, January 26, 2009.