Hurry up and wait!

In Vol. II, Art. 1, we reviewed what the FINANCIAL TIMES had to say about the doubts being expressed by industry leaders regarding the future need of mega container ships.

“Doubts have been raised,” the article began, “about the future need for so-called mega container ships, capable of carrying more than 8,000 TEU. The doubts come at a time when industry insiders expect vessel capacity to increase faster than cargo volumes,” the FINANCIAL TIMES reported.

“While giant container ships, which came into service in 2004, are expected to ‘revolutionize container trade between Asia and the US and Europe’, some shipping executives and analysts have questioned the apparent economies of scale offered by such vessels. The introduction of these large container ships will require shipping lines to reorganize their services to reflect the longer times these vessels will have to spend in port, the report stated. To maintain current schedules, such vessels will have to sail faster to make up for the extra time in port. To achieve this, ‘even with modern, fuel-efficient engines, this is likely to mean extra spending on fuel’, and that ultimately savings will depend on vessels operating with capacity loads.”

It was revealed just a few days earlier by maritime authorities that container ships were operating at somewhere between 75% and 85% capacity, and that the break-even range for container ships falls somewhere within that range. At Navis World 2004, when Neil Davidson called attention to the operational and commercial limitations that reduce the effectiveness of mega-ships, he pointed out that carriers will have a more difficult time filling these large vessels, thereby cancelling out the economies of scale that these ships are supposed to produce. Mr. Davidson had done his homework, and we cited an hypothetical situation in support of his analysis.

An 8,100 TEU mega-ship, we suggested, would require somewhere around 6,480 TEU (80% capacity) before it could even consider getting underway. This ship, we reasoned, wouldn’t sail until sufficient cargo was taken aboard, otherwise the carrier would be better off with the vessel in mothballs. Two 3,240 TEU vessels, on the other hand, would be fully loaded (6,480 TEU) and en route in that same time frame, and would be 100% profitable for the ship owner. It seemed logical to us, therefore, that the use of smaller vessels would be a more effective way to run a shipping line. A friend of ours disagreed with our assessment, however, and advised us that, come hell-or-highwater, container ships set sail on time. It was the clock that mattered, he argued, not capacity.

A recent survey published by Drewry Shipping Consultants, however, began with the statement that, “Liner shipping reliability is something of a myth”. More than 40% of the 3,300 vessels surveyed arrive at least a day late, it was revealed, and only 57% were punctual. 22% turning up one day late, 7% berthed two days behind schedule, and 12% arrived three or more days late. Drewry maintained that port hold-ups accounted for much of the tardiness.

[Mr. Davidson may be right after all about the operational and commercial limitations of mega-ships … and we may be right about the mothballs.]