Braemar: Huge ships inextricably linked to bunker costs

   Containership operators are ordering ever larger vessels in the face of a weak freight and time charter market due to a desire to control the effect of rising bunker costs, said U.K. ship broker Braemar Seascope.
   The ship ordering activity “may appear to be counter-intuitive,” Braemar said in a release Thursday. In fact, it reinforces a trend that is at least five years old. Containership operators cannot control freight rates, especially in a post-liner conference competitive environment. They can, however, control the unit cost of shipping each TEU through economy of scale. Ordering ever larger containerships is a direct consequence of this cost management.”
   At a container shipping conference in Turkey last week Braemar Seascope Research Manager Mark Williams highlighted the strong correlation between the price of bunker fuel oil – the largest single cost per TEU movement – and the average size of containerships ordered over the past 10 years. The two have moved in lockstep, particularly since 2008, according to a chart from Braemar.
   “The strength of the relationship is confirmed by the fall in bunker prices and average TEU capacity of newbuildings ordered in 2009, though of course the ships ordered in 2009 will likely be delivering into a higher bunker price environment in 2012 and later,” Braemar said. “If bunker prices continue to rise, there will eventually come a point at which naval architects will find it harder to build bigger ships.
   “The Malaccamax concept appears to be the maximum size for Asia-Europe trades and port operators will find it harder to continually upgrade facilities. The new eco-designs for containerships will become ever more important in liner companies’ cost management strategies.”