Getting the Picture

What we’re hearing now:

“Capacity may outpace demand next year. The capacity increase will surge in the second half of 2007 when a big bulk of new ships are delivered to their owners. Shipping lines will need to cut costs, look again at their route network and other measures to get ready.” — Park Jung Won, Chief Executive, Hanjin Shipping

“There’s too much capacity coming into service … This situation was caused by the shipping lines’ greed. They will have to increase efficiency by reorganizing their fleet, mergers and acquisition or other measures to cope with falling rates.” — Jee Heon Seok, Hyundai Securities Analyst

“Container rates have peaked.” — Tung Chee-chen, Chief Executive, OOCL

“Rates may fall 5% next year.” — Yasuhide Sakinaga, Chairman, Kawasaki Kisen Kaisha

“The shipping industry must prepare for a dampening effect as more newbuilds come on stream. Be prepared for possible changes.” — S. S. Teo, Chairman, Federation of Asean Shipowners’ Associations (FASA)

Now what do you suppose they mean by “other measures” and “possible changes”? Are they just now heeding the admonitions they were given in the recent past?

Neil Davidson of Drewry Shipping Consultants at Navis World 2004 in San Francisco called attention to the operational and commercial limitations that reduce the effectiveness of mega-ships. Mr. Davidson stated that carriers eventually would have a more difficult time filling these large vessels, thereby cancelling out the economies of scale these ships were supposed to produce. He also cited the limited number of ports able to service these larger vessels because of harbor depths, and 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.

And at Port Industry Day sponsored by the Port Authority of NY/NJ five years ago, moderator Conrad Everhard questioned the wisdom of expensive dredging projects in order to accommodate mega-ships. He noted that larger vessels cause increased traffic congestion and higher levels of pollution because of the additional trucks required to deliver containers, and that public funding of dredging amounts to a subsidy of shipping companies building these large ships. Mr. Everhard advised the use of smaller ships serving additional ports closer to end users. A few months later Secretary Mineta, who has remarkable analytical resources available, had the same thoughts in mind when he foretold that some 200 more of our 361 ports would be retrofitted to handle containers in the foreseeable future. It took a little while for the FASA to get the picture.