It has been a shipping industry trend where every year we see bigger and more fuel-efficient vessels coming into service now.
A big 20,000 TEU vessel seems to be yesterday’s news. State owned shipping company, Cosco, recently advised that they are working on a vessel with a 25,000 TEU capacity. Meanwhile, CMA CGM is already expecting the deliveries of its 23,000 TEU vessels this year. Here is a list of the top 10 largest container ships serving the industry right now:
- OOCL Hong Kong 21,413 TEU
- Cosco shipping universe 21,237 TEU
- Cma Cgm Antoine De Saint Exupery 20,954 TEU
- Madrid Maersk 20,568 TEU
- Ever Golden 20,388 TEU
- Mol Truth 20,182 TEU
- Mol Triumph 20,170 TEU
- Cosco shipping Taurus 20,119 TEU
- Mv Barzan 19,870 TEU
- Msc Diana 19,462 TEU
A shipping company’s main concern when ordering these mega ships is if the economy is healthy.
A healthy or unhealthy economy will determine if it will be efficient to have a mega ship considering economies of scale (i.e. fuel and personnel). However, there are hidden costs in operating mega ships that have to be taken into account as well. Here are some examples:
- These ships will be in operation for long periods of time where no one knows how the economy will be so it seems to be a big bet on things going well. The last recession that the U.S. experienced in 2008 seems to be the longest in history – where some even called it The Great Recession. In a turbulent economy, filling those mega ships is not easy, so the economies of scale that were originally planned cannot be utilized. These mega ships come with a hefty cost. OOCL is expected to pay $950 million for 6 megaships (over 20,000 TEU’s).
- Most ports do not have the capacity to handle these mega ships. Therefore, carriers can only deploy these vessels in certain lanes like Far East-Europe trade. Putting mega ships in similar lanes can also disrupt a certain trade lane. In order to fill those ships, carriers will price more aggressively so that shipping rates and profitability will go down with it. The Panama Canal is also a good example. Even though upgrades are constantly being made on the maximum TEU. Now, the Panama Canal can handle 15,000 TEU – which is far less than what the new ships are made for. As a result, a challenge emerges where the infrastructure of ports and canals are not moving as fast as ship building.
- Operating these mega ships is costly. If it takes longer than usual to unload these ships, then the carriers are losing money. Small ships normally take a couple of days to unload and move to a different port. If it takes more than 5-6 days to unload a mega ship, then ships cannot operate efficiently.
- Another hidden cost that disrupts warehouse and logistics operations at a destination port is the number of containers that come with mega ships. More container ships being unloaded at the same time causes more problems when delivering and storing them. Instead of having a regular flow of diverse amounts, more containers arriving at the same time means trucking services at each destination have to be flawless. If the warehouses at each destination cannot store this large number of items, then there will be extra costs like demurrage or per diem.
It is fortuitous that we can build much bigger and efficient ships now, but I believe there has to be a good combination of big and small ships so that flexibility is not lost when things do not go according to the plan.