The Age of the Mega Vessels
Although the first “true” modern mega ship was launched by Maersk in 2006, the Emma Maersk was just the front runner in what was eventually going to be a container ship size explosion about 8 years later.
The Emma Maersk was the first vessel to exceed the 10,000 TEU mark (although Maersk claimed
she was only 11,000 TEU for many years). Her actual capacity was around 15,500 TEU. She remained the largest ship afloat until February 2014 when the CMA CGM Marco Polo, with a nominal capacity of 16,020 TEU, was launched.
In a blaze of publicity, Maersk line ordered 20 vessels of 18,000 TEU, named the Triple E class. However, quietly, in the background, the other major players were ordering their own vessels of 18,000 TEU and above.
As these vessels began to be delivered, the rather predictable over capacity in the market began to increase, again. There are now vessels being delivered with nominal capacities of 19,500 TEU and above, MSC, CMA CGM and UASC being some of the first to deploy these ships.
The fact that bigger and bigger vessels are being built is no surprise. The larger the ship, the lower the unit cost of each container and, in turn, the more profit the carrier can make on each unit shipped.
What is unusual is how these vessels are deployed. If we were to take the example of an airline that wants to run a service going from Europe to Asia and compare it to how these vessels are being used we find an interesting divergence.
My airline has just bought an Airbus A380, at cost of approximately $375 million (vs Triple E vessel at $185 million each). My flight starts off in London, then flies to Paris, Madrid, Lisbon, Barcelona, Amsterdam, Munich, Zurich and then finally sets off to Singapore. At each of these stops, some passengers get on for the long haul flight, some for the short haul and some passengers get off. By the time my A380 reaches Zurich, it is full. I then fly to Singapore but carry on to Kuala Lumpur, Bangkok, Ho Chi Min, Shanghai, Beijing, Taipei and finally Tokyo……….crazy, right? Would you book this flight?
This is exactly how the major carriers are using their 18,000+ TEU vessels right now. The logic behind it is that there is no one port that can completely load and discharge a vessel of this size in one go. Fair enough, single point to point sailings are not practical. However, if the vessel was to call at just 3 ports in Europe and 3 ports in Asia, I would gain massive savings.
Firstly, when these vessels call at so many ports, each port requires a certain number of cranes to load and discharge the cargo. If I am able to load an entire bay for one port, the crane can simply empty the hold and backload it. Why is this important? If I am able to do single, full bays, I will see a huge increase in productivity from the cranes. They can remain in one position and the crane driver will get into the “rhythm” of moving the containers. The longer he remains in that position, the faster he will become.
Every port in my vessel rotation wants to get the vessel turned around as fast as possible so that they can get the next vessel in and working. This means that each terminal wants to deploy as many cranes as possible. When I call at 10 ports, it is no long practical for me to use single bays for single ports of discharge. I have to start mixing the bays. As soon as I do that, I start to reduce my productivity in each port. I will have some cargo loaded on deck for a different port which the current port has to reach over the top of (known as Manhattan Towers). I am also more likely to have containers that are not loaded into a permanent position and will have to be restowed (moved to another location on the vessel), at a later port. For each restow, the shipping line has to pay the cost of moving the container again, further eating into the already razor thin profit margins.
Secondly if I call at 3 ports instead of 10, I can immediately reduce costs. I only have to pay for pilotage and tugs in 3 ports. All of these costs add up. Now, the carrier may say that they simply cannot get enough cargo in such a small amount of port calls. I would counter that with the argument that companies like COSCON are able to do it, so there must be something else going on.
Maersk Line has long been an advocate of the so called “hub and spoke” concept. That is a large vessel comes into a port, discharges the containers which are then loaded onto smaller, feeder vessels to take them to their final destinations. So we come back to the same question again, why are Maersk Line, MSC and CMA CGM not able to adopt the same methodology as COSCON.
In the end it’s probably more a question of an out of date liner carrier setup that has simply been left alone. Changing a carriers network is hugely difficult and disruptive for both carrier and customer. Maersk Line has the additional problem that they are in the 2M Alliance with MSC and so both carriers would have to agree to the changes. That said, carriers, when compared to the likes of FedEx or UPS, are about 20 years behind the logistics curve. Shipping has always been a conservative industry but maybe, just maybe, they will start to look into their network optimization as the industry goes through immense upheaval over the next few years.