Mega Ships Menace for Shippers

 

The popular belief is that larger ships and alliances are good for competition because of the benefits they give, but the reality is that there are added costs due to the negative externalities they impose on others, says Chris Welsh, general secretary of GSF.

 

The restriction of competition can make other approaches necessary for regulatory policy or competition to address the competition concerns raised by the mega ships and alliances, he  said.

 

Allianz Global Corporate & Specialty (AGCS) has warned that the insurance industry is facing an increasing risk of billion-dollar losses from mega-ships as demand for larger container vessels continues unabated. 

 

The insurer highlighted concerns over how such ships could be salvaged or removed if a disaster occurred, and the degree to which they stretch port and canal capacity, as well as crew skills. 

 

Meanwhile, a drewy simulation study of the impact of mega ships on lines, terminal operators, ports and other supply chain stakeholders shows they will not deliver hoped-for cost benefits.

 

While bigger ships help carriers reduce voyage costs, these savings are increasingly offset by higher port and landside costs, meaning that total system cost savings are small and declining.

 

"As more megaships enter service the industry is rapidly approaching a critical stage," said Drewry managing director Tim Power.  "To ensure the economics of vessel upsizing continue to benefit the entire supply chain, lines and ports need to work in a more coordinated manner," he said. 

 

The study suggests that the economies of scale, that have been a key feature of the liner industry, may be running out as ships get bigger than 18,000 TEU.

 

Larger vessels place greater demands on ports where channels have to cater for deeper draughts, and on terminals which need to upgrade equipment, yard facilities, and manning levels to effectively handle increased peak cargo volumes. 

 

On a total ‘system cost’ basis the study found that the upsizing of vessels provide only modest savings for the overall supply chain with efficiency gains being further eroded as vessels size increases beyond 18,000 TEUs.

 

According to a report in JOC, the mega-ships that container lines have been ordering and deploying in the Asia-Europe trade during the last four years don’t offer the cost savings their owners had counted on.

 

The report quotes George Youroukos, CEO of Poseidon Containers, an Athens-based container ship owner as saying: "For the last four years, the orderbook has been filled with large ship orders, and what we need is for those companies to stop ordering. What they realize is that these large ships don’t offer the economies of scale they were hoping for, especially with the price of oil going down and the market going down."

 

Overcapacity in the maritime transport sector is a problem for all carriers. In fact, some reports highlight the benefits for ship operators to have different size ships and not focus only on the mega ships.