The benefits of upsizing are beginning to plateau and require more infrastructure investment, according to a new report by the OECD’s International Transport Forum.
A new report by the OECD’s International Transport Forum says, “There are cost savings of mega-ships, but these are decreasing and might not even be realized.”
The 108-page paper, titled “The Impact of Mega-Ships,” notes the maximum size of container ships has nearly doubled over the last decade. The largest today, the MSC Oscar, has a capacity of 19,224 TEUs. China Shipping’s CSCL Globe has a capacity of 19,100 TEU.
Even bigger containerships, able to carry 21,000-22,000 TEUs, are said to be on order. Just this week, Lloyd’s List said ocean carrier MSC is rumored “to be finalizing a newbuilding order for up to four 20,000-TEU containerships at Hyundai Heavy Industries.”
That doubling “has reduced total vessel costs per transported container by roughly a third. However, these cost savings are decreasing with size; the cost savings of the newest generation of containerships are four to six times smaller than the savings from the previous round of upsizing,” said the ITF report.
“Approximately 60 percent of the cost savings of the most recent container ships are related to more efficient engines and not to scale,” the report added. “In addition, mega-ship development and the related container fleet capacity growth has taken place despite sluggish growth of world containerized seaborne trade.”
The paper contends, “The massive ordering of new mega-ships has resulted in oversupply of container ships, which will most likely dampen some of the cost savings due to larger ships, as low demand results in fewer savings per transported container.”
For example, if a ship is not fully loaded, it will not realize its potential savings. The report points to a 2013 study that contended “the utilization rate that an 18,000-TEU ship would need to have to achieve cost savings relative to a fully-loaded 14,000-TEU ship is approximately 91 percent.”
The report notes larger ships may require substantial improvements to “existing infrastructure, such as bridge height, river width/depth, quay wall strengthening, berth deepening, canals/locks and port equipment (crane height, outreach).
“Mega-ships also require expansion of infrastructure to cater to the higher peaks related to mega-ships; as a result, more physical yard and berth capacity is needed.”
The report estimates additional transport costs related to mega-ships could amount to $400 million per year with about a third going to port equipment, a third to dredging, and a third to port infrastructure and port hinterland costs.
“A substantial share of the dredging, infrastructure and hinterland connection costs are costs to the public sector in many countries,” it noted.
According to the report, “supply chain risks related to bigger containerships are rising” with concerns looming about the insurability of mega-ships and the costs of potential salvage in case of accidents.
“Mega-ships also lead to service and cargo concentration, reduced choice and more limited supply chain resilience, especially since bigger ships have coincided with increased cooperation of the main shipping lines in four alliances,” the report said.
Public policy makers need to take better account of the “how the costs for the public sector imposed by mega-ships could be covered. Many ports and countries have, either accidentally or on purpose, encouraged the development of mega-ships,” according to the report. “More balanced decision making would be needed, with clearer alignment of incentives to public interests, policy support to enhance supply chain productivity, more regional collaboration and the creation of an appropriate forum for a discussion between liner companies and all other relevant transport actors.”
ITF raises a red flag about further increasing maximum container ship size and draws attention to the phenomena of cascading, whereby as the largest ships are introduced into the trades between Asia and Europe and Asia and the Mediterranean, ships formerly on those routes are displaced into trades to North America, South America, and Africa.
“Introduction of one hundred 24,000-TEU ships in 2020 would require substantial investments in those places where these ships would be first introduced (Far East, North Europe, Mediterranean), but would also – via cascading effects – result in introduction of 19,000-TEU ships in North America and 14,000-TEU ships in South America and Africa. This would imply additional investment requirements there as well.
“The potential cost savings to carriers appear to be fairly marginal, but infrastructure upsizing costs could be phenomenal,” the report says.
ITF makes a number of policy recommendations in the report:
- Countries and ports should make more balanced decisions on accommodating mega-ships in comparison to the overall economic benefits, including port income, savings to local shippers, and whether such savings will be sufficient to pay for such costs.
- Accidental subsidies or misaligned policies that encourage upsizing, or that provide public resources to container shipping without appropriate recovery of costs should be eliminated.
- Policy support should be provided to ports so they can enhance supply chain productivity and innovation.
- Ports and regulators should consider collaboration at a regional and cross-port level. As container shipping lines increasingly consolidate and cooperate, so could countries, port authorities and regulators at a strategic planning level.
- Forums should be held for liner companies to discuss their plans with other transport stakeholders. Container lines have typically not consulted anyone on new mega-ships, before they ordered them.