Feeding Baby Huey

Now that you’ve reviewed that November 2nd, 2004 reprint, think about these recent headlines:
• “Matson’s new ship makes maiden call at Shanghai”
[Note: The MV Maunalei is an American-built 2,700-TEU vessel. The vessel’s oil consumption is 25% lower than other ships, yet it provides the fastest China-US West Coast service.]
• “New Safmarine box ship christened”
[Note: The first of a series of 4,154-TEU vessels to be built by Hyundai Heavy Industries.]
• “OOCL receives its first China-built containership”
[Note: The first of four 4,583-TEU to be built by Hudong in Shanghai.]
• “OOCL names second of two 4,583-TEU vessels built by Hudong.”
• “MOL adds 6,000-TEU vessel on PSX service”
[Note: One of two 6,350-TEU vessels to be added to the company’s Pacific Southwest Service.]
• “Evergreen vessel named ship of the year”
[Note: The “Ever Superb”, the fifth in a series of 7,024-TEU vessels, has been named 2006 “Ship-of-the-Year” at the 8th Lloyd’s List Maritime Asia Awards. The company has stated that the design of these vessels will be a driving force in the development of its future fleet and operations.]
• “Evergreen’s 7th 7,024-TEU ship to arrive in March”
[Note: The “Ever Strong” is the seventh in a series of ten 7,024-TEU vessels. The sixth vessel in the series, the “Ever Steady”, is due for delivery by the end of 2006.]
• “OOIL orders four box vessels”
[Note: “It is the view of the directors that ownership of the vessels will improve both the operating efficiency and profitability of the group,” OOIL said in a statement.]

… now consider these moves:

• “Maersk unveils 11,000-TEU Estelle Maersk”
• “YICT welcomes the Emma Maersk”
• “AP Moller-Maersk names latest 11,000-TEU newbuild, the ‘Eleanora Maersk’”

… and the inevitable consequences:

• “Maersk line expects $ 600 million loss in 2006″
• “Maersk seeks to raise container shipping rates to the US”
• “Maersk to reduce Europe-China BAF”
• “Maersk Line to raise rail box charges in S California”
[Note: The lines in TACA are Atlantic Container Line; Maersk Line; Mediterranean Shipping Co.; NYK Line, and Orient Express. This increase in fees follows a similar move by Union Pacific Railroad and BNSF Railway to recover fees they pay to use the doublestack rail line that connects the Ports of Los Angeles and Long Beach with the national rail network.]

That “tipping point” for Southern Californians is getting closer and closer.

More headlines …

• “16 shipping lines raise cargo rates”
• “Grand Alliance reduces slack season transpacific capacity”
[Note: Member lines engaged in the transpacific trade have announced that the group will mothball vessels during the expected slack period. Alliance members Hapag Lloyd, NYK and OOCL will together lay up around 3,000 TEU per week.]
• “New World Alliance cuts 4,000 TEU capacity in slack season”
[Note: The shipping lines in the alliance, APL, Hyundai Merchant Marine (HMM) and MOL, said in a statement that the downward adjustment in capacity has been made to meet the anticipated decrease in trade demand. The move follows a similar decision to mothball vessels made recently by member lines of the Grand Alliance engaged in the transpacific trade.]
• “Senator Lines concludes ‘painful’ downsizing talks”
[Note: Bremen-based Senator says the plan, “Concept 2007″, was developed in response to the paradoxical trend in the market characterized by a downward pressure on rates despite rising demand — especially in the Far East. Carrying capacity will be cut up to 240,000 TEU per year, and there will be job losses, officials said. The logical response to “rising demand”, of course, is to reduce carrying capacity and employment opportunities.]

Here’s the “paradoxical trend” that mystifies maritime authorities. It’s all spelled out in a Dec. 5th article in the BUSINESS TIMES, “Global rates set to fall as capacity rises: S Korea”, based on information provided by South Korea’s Ministry of maritime Affairs and Fisheries. Because a record number of vessels are being delivered, the report states, rates have fallen and carriers are reporting a decline in profits.

“With excessive capacity being added, shipping lines are aggressively competing to increase their market share and that is causing rates to fall as well as hurting their profitability,” Lim Jin Soo, a researcher at the Korea Marine Institute, said in a statement.

As we’ve already noted, a number of shipping lines and alliances have been reducing capacity by temporarily suspending some of their services in their efforts to stem further declines in rates. But in the meantime, these same carriers will be adding about 250 more vessels by the end of 2008, an amount equivalent to half of the current global fleet, the ministry revealed. Does that make sense?

Clear as mud, right? These confusing and conflicting stories inadvertently reveal that, at least in some cases, the right hand doesn’t seem to know what the left hand is doing. Mr. Neil Davidson of Drewry Shipping Consultants, has pointed to the operational and commercial limitations that reduce the effectiveness of mega-ships, and also warned that carriers will have a difficult time filling these large vessels, thereby cancelling out the economies of scale these ships are supposed to produce. He cited the limited number of ports able to serve these vessels as well as the inability of these vessels to accommodate importers and exporters who prefer more direct, less costly service. “The bigger the ship, the more transshipment and feedering you need, and that costs money,” he said.

It would appear as though some folks understood what Mr. Davidson was saying. Unfortunately, others have thrown caution to the winds, and now the chickens are coming home to roost.