A Hasty Court-ship

In his address at Navis World 2004, after it was revealed that container ships had been operating at somewhere between 75% and 80% capacity, Neil Davidson of Drewry Shipping Consultants called attention to the operational and commercial limitations that reduce the effectiveness of mega-ships.

That 75% to 80% capacity figure had significance, he said, because the break-even figure for container ships fell somewhere in that range, and he pointed out that carriers will have a more difficult time filling these large vessels during periods of decline, thereby cancelling out the “economies-of-scale” that these vessels were supposed to provide.

Mr. Davidson expressed this concern a number of different times at subsequent conferences, but very few paid attention. Just as he surmised though, a period of economic decline has arrived … big time … and little is now being said about “economies-of-scale”.

Much is being said about the difficult time carriers are having filling these vessels, however. One of Maersk’s recent CEOs admitted that in order to sustain acceptable freight rate levels carriers must now reach 90% or more ship utilization, a far cry from the 75% to 80% break-even level of pre-mega-ship days. That figure rises to 100% in peak seasons, he added.

With the economic downturn of late, extended periods of time at loading berths are now required in order for mega-ships to attain break-even levels … and time is money. And too much ship means too much money. So much money, in fact, that a $ 568 million loss was incurred by Maersk in 2006 and many thousands of employees were terminated.

Even the unthinkable has taken place. Vessel Sharing Agreements, that is, partnering with despised rivals, have now become a fact of life. It’s either that, or mothballs for the idolized mega-ships.

Well, why mothballs? Because these inflexible goliaths can perform only limited services, that’s why. Three years ago Katherine Yung of the Dallas Morning News reviewed these limitations. She wrote that these giants;
• could only be berthed during daylight hours and when the wind falls below 10 knots;
• require four to five days to offload, instead of two to three;
• require larger, more expensive cranes than those found in most ports;
• consume 20 tons more of fuel each day than the next-biggest carriers;
• require longer berths than those available in most ports;
• force railroads to make costly adjustments in equipment and personnel;
• can service only three U.S. ports — Long Beach, Oakland and Seattle;
— and if “In the next few years, all these ports will be overrun by these ships,” she warned, enormous amounts of taxpayer funding will be required for dredging, berth expansion, equipment upgrading, bridge and highway replacement projects, and so on and so forth.

[On second thought, mothballing may not be such a bad idea after all.]