Is the ship half full or half empty?
Recall these observations? Santanu Sanyal provided this one just last summer.
“Operationally, a mega ship will cause congestion. A new 8,000-TEU vessel will probably disgorge about 6,000 TEUs on the quay-line of a hub port as compared to 2,000 TEUs by a 5,000-TEU capacity vessel. Which means, a mega ship has to stay at the berth for a longer period.
“Also, the key trade lanes will see big ships calling at hub ports within hours of one another. Which means, as a mega ship stays in the berth there will be several others lining up for berths.
“The cumulative effect of all this is that there will be congestion …
“There are other issues. The hinterland too has to be developed to be able to cater to the requirements of the new capacity vessels … This will push up the cost. In fact, the maritime logistics chain is likely to be overstretched …
“The new generation mega ships will need ports with deeper draughts. This will limit the number of ports they can call at. Transshipment will increase and, with it, the repositioning of the empties.
“As it is, according to Drewry Shipping Consultants, transshipped containers account for 100 million TEU movements, representing 28 per cent of the total handled, and the repositioning cost of the empties last year amounted to a staggering 16.5 per cent of the combined carrier income.”
Zenzaburo Wakabayashi, executive vice president of “K” Line, warned that shipping lines should carefully consider the impact on inland transportation operations and service levels before ordering giant containerships with capacities of 9,000 TEUs or larger.
“We need to seriously consider a number of consequences, as this is more than just a matter of ship size,” Wakabayashi said at a recent Containerization International conference in London.
“Container vessels of close to 9,000 TEU or even bigger have recently been tabled,” he said. “Will this make the best sense?” The operation of 9,000 TEU ships raises terminal, intermodal and commercial issues, he said.
“As someone who is reasonably concerned about the future of the industry, I would want to be reasonably careful about this important subject before endorsing any new mega-size scheme,” Mr. Wakabayashi said. Infrastructure areas to be considered include terminal facilities, yard space, gantry crane capacity and productivity, chassis logistics, computer systems and inland transportation, he added. Mr. Wakabayashi stressed the fact that touted scale economies may result in a lower cost of slot on board mega-vessels, but he cautioned that such vessels may adversely impact service quality, as three or four days would elapse from the time the first container is unloaded in port to the time the last container leaves the port.
He informed his listeners that port-to-port cost saving from operating a 9,000-TEU ship is “perhaps $ 150″ per trip per TEU, but would only be achieved if the vessel was fully utilized.
Fully utilized, huh? Didn’t we just hear from Mr.Charlie Woo about full utilization? Just this past June, in fact, as the Christmas rush was upon us, Mr. Woo, the owner of Megatoys, revealed that shipping rates had dropped, surprisingly, and that he is saving $ 50 to $ 100 for each cargo container he fills.
Mr. Woo was benefitting from a slowdown in the furious growth pace of international trade, combined with a building spree of ever-larger ships.
“If their ships are full and their business expands, they want to raise the rates,” Mr. Woo said. “I think the ships are not completely full, and the competition to fill them is fierce.
“The deluge hasn’t hit yet, but we will see more and more vacant space on these ships,” said Mark Page, director of research for Drewry Shipping Consultants of London.
“For some time now, we have been receiving far too much in the way of ships and in very large ships in particular. Now, we are looking at three years to three and-a-half years of overcapacity,” Mr. Page said.
If you have a minute, review what was being said in this regard by Mr. Neil Davidson of Drewry Shipping Consultants. We printed his views in our November 2nd , 2004 commentary.
Speaking at Navis World 2004 in San Francisco, Mr. Davidson, we wrote, “ … called attention to the operational and commercial limitations that reduce the effectiveness of mega-ships. Mr. Davidson foresees carriers having a more difficult time filling these large vessels, thereby cancelling out the economies of scale these ships are supposed to produce. He also cites 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,’ Mr. Davidson said. This is another example of an unwitting subsidy paid to shipping lines by consumers, and emphasizes the need for smaller container handling ports in closer proximity to end users.”
Two days later we commented upon the views expressed by the U.S. Office of Management and Budget. On November 4th, 2004, we wrote:
“The Office of Management and Budget has likewise given us a hint or two about its reluctance to fund dredging projects that benefit only mega-ships but increase port congestion. Remember also that these mega-ships aren’t Jones Act ships, so why should this nation’s taxpayers and consumers subsidize offshore owners by funding dredging projects and demolishing and rebuilding bridges, especially if it can be shown that there is a more efficient and profitable way to handle the increased volumes of TEUs in the coming years.”
[Our port officials should listen to these analysts. They might learn a thing or two.]