Concentrating risk on the seas

   Remember back to 1996 when Maersk introduced the 6,400-TEU Regina Maersk to the Europe-Asia trade?
   Then the vessel was considered the giant of the sea, unable to fit through the Panama Canal and barely able to enter fully laden in many U.S. East Coast ports due to its hull depth. Since renamed the Maersk Kure, the Regina is now a distant memory and a much smaller containership as the Danish carrier and others have since set out to acquire increasingly larger vessels — now in the range of 18,000 to 18,500 TEUs.
   What’s the attraction of this financially fickle industry to want to obtain such behemoth ships? Liner carrier executives will tell you it’s all about the economies of scale, or lower per TEU shipping costs, via more fuel efficiency and increased capacity on fewer ships in major service strings.
   These vessels undoubtedly are well designed in terms of their hull shape, efficient engines and sophisticated onboard systems. Alphaliner calculated while the 8,500-TEU ships have a fuel cost of about $540 per TEU in the Asia-Europe trade, the 13,000-TEU vessels can achieve $460 per TEU, or a 17 percent savings on the cost per slot. Larger ships should be able to achieve even greater per-TEU savings. And surely, the carriers that will invest the enormous financial sums to acquire these 18,000-plus TEU ships have double- and triple-checked their figures before taking the plunge.
   Still, these massive containerships must fit into a much larger and often restrained logistics picture, namely in their connections to port facilities. When these 18,000-plus TEU ships soon surface in the Asia-Europe trade they will take much longer to load and unload.
   These vessels have already hemmed themselves into specific trades, since they’ve exceeded the capacity of the
   upcoming widened Panama Canal, and outstripped the channel depths and terminal capabilities of many of the world’s ports.
   More cargo concentrated in so-called mega-hubs will inevitably result in increased transshipment of boxes to reach their final destinations, chopping into the supposed big-ship economic benefits by driving up handling costs and transit times. “Big ships will only yield super-profitable returns if they are kept full of profitable cargo at all times,” as Francis Phillips of BlueWater Reporting put it to American Shipper.
   One of the biggest downsides to having fewer and much larger containerships will be the level of concentrated risk, meaning if something should happen to the vessel, such as severe mechanical failure, fire, grounding, or worse yet, sinking, the financial detriment due to cargo loss or damage would be much higher than ever experienced in the history of container shipping.
   However, this is obviously a risk liner carriers have deemed worth taking. Shippers don’t have a voice in these decisions; however, they may benefit if the carriers overblow their capacity in the world’s trade lanes with the introduction of these giant ships to trunk lines and forcing smaller trades to take on unnecessary space through the process of cascading vessels.
   Despite all of this, don’t be surprised by the end of this decade if the 18,500-TEU ships are outstripped by vessels with box capacities reaching upwards of 22,000 TEUs.