The Hindu Business Line : Are bigger box-ships better?

According to shipping experts, the Super Post-Panamax vessels could increase an operator’s cost base, if additional sales and marketing staff are required to be deployed to get business.

Santanu Sanyal

How times change. The 1980s saw the emergence of the first batch of Post-Panamax box ships. The shipping world watched with wonder huge 4,500 TEU monsters sailing around the globe. Today, vessels almost three times that size are rapidly becoming commonplace.

Reports have it that orders have been placed for more than a dozen containerships of the capacity of 12,000 TEUs each. There are even talks of Malaccamax box ships of 16,000 TEUs or even 18,000 TEUs in not too distant future.

But is big necessarily beautiful? The question haunts many in shipping circles today. Not without reasons though. True, the larger the unit, the larger will be the saving in terms of cost per slot. But then the experience with other types of mega vessels like ultra-large crude carriers (ULCCs) of the capacity of 5,00,000 dwt and large bulk carriers of the capacity of 2,60,000 dwt and above has not always been happy. There are several other issues which also deserve careful consideration.

The slots of a mega box ship have to be filled first, and, to ensure utilisation, prices may have to be discounted. According to some shipping experts, the Super Post-Panamax vessels could even increase an operator’s cost base, if additional sales and marketing staff are required to be deployed to get business. Box ships above 10,000 TEUs also need to be fitted with twin engines if a higher speed of 25 knot is to be maintained costly proposition.

The downside

Bigger may be better but with bigger ships come the chance of bigger cargo losses, and a couple of large losses may make marine insurance market retreat. The marine insurance market therefore may not be exactly looking forward to these monoliths.

Next, the security concern. Tighter security and increased inspections of the containers at ports have come to stay. There are cost implications. First, the direct cost. Drewry estimates that it costs between $30 and $50 to scan a box. Europe ships an estimated 1.8 million TEUs to the US each year, entailing a bill of anything up to $90 million per annum. Asia sends 13.7 million TEUs, so ports in Asia have to shell out something like $680 million. The bigger the vessel, the higher will be the cost. Higher costs are also tied to the extended time and delays at ports. Extended time, because a mega vessel will take a longer time to fill its slots; and delays because not all forwarders would stick as tightly to the rules as the authorities would want them to.

Then, there are road and rail bottlenecks which would often throw the transportation of containers to the port as well as getting them off the terminal out of gear. As it is, the problem of port congestion is sweeping across the continents, from Europe to US and from Latin America and Australia to Asia, and in many cases the issue of inland rail and road links to ports has emerged critical. Forcing mega vessels to wait for long to load and unload cargo can be catastrophic for all concerned. The environmental legislation, according to UK’s Transport Intelligence news portal, is one of the biggest challenges facing today’s global logistics industry including shipping. The regulators are coming out with new mandatory reg ulations entailing additional cost for the ship owners, shippers and terminal operators. Counting food miles to establish a “carbon footprint” may well have a devastating impact on shipping produce from poor to rich countries, it is pointed out.

legislation

The European Commission has said that it will draft the legislation before the end of the year to limit ship “climate change” carbon emissions under a Kyoto-type cap-and-trade system and the shipping companies will be added to the emissions trading scheme.

The European ship owners have reacted sharply to it saying that they will be put at a disadvantage as they will be required to carry extra costs of cutting carbon emissions. The bigger the size of the vessel, the larger may be the cost burden.

The new mega box ships will call at fewer ports than today because only a handful few around the world will have enough draft and be adequately equipped to handle these huge vessels. Which means, the trade routes will expand and the vessels will be sailing longer, from more distant ports, reducing the capacity available at the majority of ports and putting pressure on prices.

There is another point. The availability of locations where deep-water ports (ideally suited for handling mega box ships) can be developed, may be limited; it is not clear yet how many mega terminals could be really set up. Perhaps redundant facilities could be sold or swapped for contiguous space or used to handle increasing volumes.

True, mergers, acquisitions and joint ventures are now common among terminal operators and the pace of consolidation may accelerate. But the terminal owners have a commodity that is in short supply and even with recent consolidation, the industry remains fairly fragmented, though it will become less so in coming years, feel analysts.

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