Last month FreightWaves reported on McKinsey’s forecast of the next 50 years of container shipping, which, among other things, predicted 30,000 TEU (twenty-foot equivalent unit) ULCVs (ultra-large container vessels) in the near future and further consolidation among container shippers by way of outright mergers and acquisitions.
Those predictions are already starting to be borne out: CMA CGM, the world’s third-largest container shipping firm, announced an order for 9 22,000 TEU ships based on their confidence in the continued recovery of maritime shipping rates. Then Mediterranean Shipping Company (MSC) confirmed its own order for 11 new 22,000 TEU ships, to be built at Daewoo Marine & Engineering shipyard in South Korea. All of these ships will be larger than the current TEU record-holder, the 21,413 TEU OOCL Hong Kong, and will run routes from Northern Europe to Asia Pacific.
These new orders arrive at a moment when the global containership orderbook had fallen to 2.6M TEUs in October, a record low since December 2003.
The container market is still recovering from a historic glut in capacity stemming from Maersk’s decision in 2011 to order more than 20 18,000 TEU vessels, which prompted a number of competitors to do the same. Shortly thereafter, maritime shipping rates crashed, and those low prices have continued to hobble the market until quite recently.
“The problem with the industry as a whole is that there are just too many ships,” said Toby Yeabsley, an analyst at Vessels Value. “It’s a struggle to see where these are going to fit in.” But after years of low rates—rates for a 40 ft container are down 30% since 2014—asset prices have dropped too, making ordering new vessels more attractive. CMA CGM and MSC seem to be betting that the market has finally hit bottom. Both Maersk and Hapag-Lloyd say they are sitting out on this round of new orders.
But these latest orders by CMA CGM and MSC do not necessarily point to an overall increase in TEU capacity. “A significant number of 13,000-TEU and 14,000-TEU vessels will come off-hire in the coming years and the new order is expected to effectively replace this fleet, rather than substantially increasing MSC’s overall capacity,” MSC said in a statement. This reflects McKinsey’s analysis that the rate of TEU capacity growth is slowing to fall more in line with global GDP growth rates—McKinsey thinks that TEUs will grow at a rate between 1.9% and 3.2% per annum until 2066.
The expansion of the Panama Canal, finished last summer, had an immediate effect on ship size—container firms started scrapping 5,000 TEU Panamaxes, even vessels that were only a few years old. The new 22,000 TEU ships on order continue this trend toward consolidation of containers into larger vessels.
CMA CGM’s new vessels, to be built at three state-run CSSC shipyards in China, will be among the first merchant ships to run transoceanic routes on liquefied natural gas (LNG). CMA CGM has started switching fuel sources as part of their effort to lower their carbon emissions: the firm has already cut its CO2 emissions per TEU in half relative to 2005 levels, and plans to cut its carbon footprint by another 30% by 2025.
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