Coming Up Empty

There’s ample evidence that the break-even point for a container ship is around 85%. Theoretically, the vessel’s departure will – and should be – delayed until that point. Otherwise, why bother?

But get this. Australia’s “The Daily Commercial News” revealed two days ago that “Maersk plans to run Triple-Es part empty until 2014”.

“Soren Skou, Maersk Line chief executive, has pledged to only operate the company’s new Triple-Es at 14,300 teu capacity, the same as the E-class ships, for the next six months.

“Mr. Skou made this pledge within minutes of the 18,270 teu Maersk McKinney Moller being named in an effort not to destabilize the troubled Asia-Europe trades …”

A 14,300 TEU load amounts to just a little more than 78% capacity – so it sounds like things are just rosy in “the troubled Asia-Europe trades”. But according to a Drewry report on August 19th, “… industry feed back indicates that this year’s peak season between July and September will again be poor. Ocean carriers’ response was to cut capacity, primarily through cancelled sailings. Altogether, 14 departures were suspended as ocean carriers battled to align supply and demand more closely in order to stop freight rates from heading southwards.”

Earlier in July, a Marine Log report stated, “Faced with declining volume growth and overcapacity in the market, some of the biggest container line operators in the world have agreed in principle to create a long-term alliance on East-West trades that aims to improve efficiency and reduce costs.

“Called the P3 Network, the joint alliance of Maersk Line, MSC Mediterranean Shipping Company S.A. and CMA CGM would operate a capacity of 2.6 million TEU …

“The improved network is expected to reduce the disruptions for customers caused by cancelled sailings.” –

So, if bigger is better, and if monstrous vessels are being ordered because they provide “economies of scale” advantages and “reduce disruptions”:

– Why the joint alliances?
– Why the departures at well-below break-even points?
– And why the slow-steaming?

The answer is simple and obvious. Ocean carriers are battling “to align supply and demand more closely in order to stop freight rates from heading southwards”. Supply and demand. Get it?

Carriers won’t admit it, but trade is going southwards – not just the freight rates – and still they insist on employing giant vessels on money-losing routes. That’s efficiency and cost-reduction?