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Mega-Ship Trend Comes With Consequences

5 March 2012

    Analysts predict container industry will shrink to seven to 10 carriers by mid-2020s 

    The economies of scale that are driving carriers to replace their fleets with mega-ships will result in the consolidation of shipping lines or in the reduction of competition on customer service, according to a panel on the growth of ship sizes at the 12th annual Trans-Pacific Maritime Conference in Long Beach on Monday.

    “The container industry will shrink to seven to 10 carriers by the mid-2020s,” said Lars Jensen, CEO and partner of Seaintel Maritime Analysis. “It may be eight, it may be 10, but there will be fewer players.”

    Jensen said industry consolidation, which has stalled in recent years but will start again by 2015 because of the need to order and pay for more ships with capacities of more than 10,000 20-foot equivalent units. 

    The capacity of the global container fleet will grow by 7 percent per year through 2015, but the capacity of the new mega-ships being delivered will increase at a 30 percent annual rate, Jensen said. “From now until the end of 2014, the mega-ship fleet will grow by 120 percent,” he said. By 2015, mega-ships will account for more than half of the capacity of the total container fleet.

    As more large ships enter the Asia-Europe and the trans-Pacific trades, carriers will cascade smaller and less-efficient ships on the trans-Atlantic and the north-south trades, which have not been hit by the overcapacity that has caused freight rates to plunge. But these trades, which have had relatively stable freight rates, will start to suffer from too much capacity, Jensen said.

    In the last few months, most of the major container lines have consolidated their east-west services in reaction to the advent of the Daily Maersk service between Asia and Europe last fall.

    “These carrier consolidations are not marriages made of love,” said Otto Schacht, global head of seafreight for Kuehne + Nagel. He said this is resulting in less choice for shippers because the consolidated services offer fewer sailings and departure times. The only way a carrier that is selling a consolidated service can differentiate itself from the competition is through better services, he added.

    Tim O’Connell, senior director of trade and marketing for Maersk Line North America, said the carrier had ordered its 18,000-TEU Triple-E ships to achieve economies of scale through the lowest slot costs and high-energy efficiency and low emissions.

    “The size of the mega-ships is already approaching its upper limit, because ships larger than 18,000-TEUs cannot be loaded and unloaded quick enough to offer the frequency of sailings demanded by the market, Jensen said. In addition, few ports have the infrastructure to handle ships bigger than the Maersk Triple-E ships.

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