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Container Shipping & Trade

Container Shipping & Trade

Owners ‘relentlessly pursuing’ mega box ships

Thu 29 Mar 2018 by Barry Luthwaite

Owners ‘relentlessly pursuing’ mega box ships

The box ship industry is entering a new era of ULCS ordering, driven by hunger for competitive advantage

After a pause in ordering, the big owners are now relentlessly pursuing ultra large containerships (ULCSs) in abundance ahead of better prospects on the Asia–Europe routes.

There is currently an understandable sense of cautious optimism but how long will it last? Profits are being recorded over a longer period for the first time since UCLSs were introduced. It has proved a long time coming. A recent ordering drought over a year helped ease the situation but cargo demand was still slack. Now orders are again stacking up which could disturb a fragile equilibrium when the new vessels enter service between now and 2021.

Looking at the current newbuilding situation the recent plethora of business is starkly illustrated. Seventy ULCSs in excess of 17,000 TEU have been commissioned since 2013 when the Maersk revolution started with delivery of the first four E-class 18,000 TEU ships. The total fleet commissioned currently stands at 1,333,579 TEU but by 2021 this will rise by 64 more units adding 1,320,618 TEU to the global fleet, which will then contribute a total of 134 ULCSs.

The hunger for competitive advantage is increasing and more orders will be seen. Japan plays a significant part in construction, especially at Imabari where there are hidden ULCS orders for the shipowning arm Shoei Kisen Kaisha, which will be bare-boated to the major Japanese owners and Evergreen Marine.

Owners are under pressure to catch up and other factors are playing their part. Obviously for any ULCS newcomers, the track record with smaller sizes and their own customers will demand due diligence before being accepted by the two big Asia–Europe consortiums as mitigating factors. Is there room for even more ULCSs and will it eventually depress freight rates?

The original Maersk 18,000 TEU pioneering E-series were originally costed at around US$160M each, but later reduced to US$140M apiece as a crisis hit shipbuilding and there was a global downturn in the box trades, especially between Asia and Europe.

Upcoming orders

The next big order likely to be firmed will centre on a requirement by Hyundai Merchant Marine (HMM) for 12 ULCSs complemented by eight 14-15,000 TEU units. Tendering was invited in March. Some of the newbuildings will undoubtedly be optional choices.

There is likely to be a share between the big three South Korean builders but HMM is originally seeking 2020 deliveries which is increasingly doubtful following the revival of the volume of all ship type orders having improved the fortunes of debt-ridden shipyards. This has now moved the big three builders into quarterly operating profits for the first time in many months. HMM itself has fallen behind its competitors through a severe cash crisis taking the container division to near bankruptcy. Efforts to achieve a sale of the division did not induce sufficient interest, which disappointed the key stakeholder in HMM which is state-owned Korea Development Bank (KDB).

Now the attitude has changed and with KDB offering financial assistance, rehabilitation is underway beginning with the newbuildings and self-owned leap into the ULCS age. Another key reason is an ageing fleet which means that with tougher legislation on compulsory environmental measures from the start of 2020 necessary upgrades will cost between US$1-3M per ship. The surprise is that HMM has specified vessels that would currently reach the world’s largest capacity at 23,000 TEU.

Looking at LNG

Only recently rivals CMA CGM and MSC placed newbuilding ULCSs at new record capacities of over 22,000 TEU as the two do battle in rival consortiums in Asia–Europe trades. Although there has been a slow and considered reaction to the use of LNG fuel from Asian owners it is likely that state-sponsored HMM has included LNG fuelling as an option in the tender. This would draw a price of around US$150M per ship with an increase of US$10M more for adopting full LNG fuel. Dual fuelling is still the preferred choice among owners because LNG infrastructure is still poorly served. In the case of dual fuel, scrubbers will be utilised. This has been adopted by Evergreen and Yang Ming on recently placed ULCS orders nominated with dual fuel.

Owners are looking more and more at niche areas, but these are increasingly harder to find, and rival owners soon follow suit. But how and where can owners change this? ULCSs are only associated with Asia–Europe but this is about to change. Essentially, lack of port infrastructure and water depths prevent ULCSs callings elsewhere. If global trade continues to grow for the big boys there will be a clamour for ULCSs to absorb more business.

ULCS conversions

However, with deliveries stretching into 2021 underlining the lack of building space, owners have returned to a tried and trusted formula unused for around a decade. Conversion has returned as an acceptable option offering the inducement of increased capacity and a redelivery span of three months to undergo work. The majors have already seized this opportunity, but it remains to be seen how far this choice will go. MSC and CMA CGM have slated 21 ships for lengthening selecting neopanamax recently built ships of 14,000 TEU into 17,000 TEU units thus placing them on the bottom rung of the ULCS ladder.

Most importantly this will open the way to more port calls, though many have already argued they will be loss makers and will further add to the threat of overcapacity and threaten freight rates once again. The moves by both MSC and CMA CGM confirm the faith in ULCSs but are also a 'throw of the dice' to penetrate other destinations from Asia to other European destinations where previously there has been a limit to size.

Although not always fully loaded, 14,000 TEU vessels have successfully been transiting a faster route from Asia to US East Coast via the widened and deepened Panama Canal which has proved a great success with increased traffic in the last two years. Unfortunately, any TEU increase in these conversions will result in a potential loss of 21 ships from Panama Canal transit hitting the Authority’s revenue streams. If all 21 conversions go ahead around 60,000 TEU will be added to the global fleet. The enlarging exercise will see the vessels increase in length from 365.5 m to slightly under 400 m, raising TEU capacity by 20% on a nominal intake basis. 

The actual additional mid-body will raise intake to 15,496 TEU, while the additional deck tier will nudge this to 16,996 TEU, on the fringe of ULCS status. The orders concerned involve one shipyard – Qingdao Beihai Shipbuilding Heavy Industry giving a significant boost to Chinese industry. MSC has signed for the retrofitting of nine firm vessels with two additional options while the French major has opted for five plus optional five similar retrofits. All the work is stemmed for completion by the end of 2019. Longer voyages to the USA will eventually be cancelled out by the larger capacity. The 21 vessels were built between 2008 and 2010.

Maersk, which is the joint partner with MSC in the 2M alliance has shunned ULCS conversion upgrades but will convert eight E-series 15,500 TEU vessels to 16,300 TEU filling a possible void in capacity availability in this range. Other owners are already tweaking newbuildings if construction has not yet started.

 

ULCSs in service    
Shipowner no teu
AP Moller-Maersk 27 506,772
Quantum Scorpio Box 6 115,200
United Arab Shipping 6 112,255
China Shipping Container 5 92,700
Minsheng Financial (MSC) 6 115,182
OOCL 4 85,339
CSSC Shipping (Hong Kong) 3 53,577
Hong Kong Asset Management 3 57,672
Mitsui OSK 3 60,510
MSC 2 38,000
CMA CGM 1 17,722
COSCO 1 19,150
COSCO Shipping Lines 1 20,000
Doun Kisen 1 20,500
Zodiac Maritime 1 19,000
Total 70 1,333,579
     
ULCSs on order    
Shipowner no teu
Shoei Kisen Kaisha 17 328,200
COSCO Shipping Lines 14 282,528
CMA CGM 12 267,300
MSC 11 242,000
Kyosei Kisen 4 80,600
AP Moller-Maersk 3 58,890
Doun Kisen 1 20,500
Mitsui O.S.K. 1 20,100
Mitsui Soko 1 20,500
Total 64 1,320,618
     
ULCSs on order    
Shipbuilder no teu
Imabari 23 449,800
Shanghai Waigaoqiao 12 253,928
Daewoo 8 168,890
Samsung 7 152,100
Hudong-Zhonghua 5 117,500
Hanjin Subic Bay 3 61,800
Dalian COSCO Shipyard 2 38,300
Dalian Shipbuilding Industry 2 40,000
Nantong COSCO KHI 2 38,300
Total 64 1,320,618

 

 

 

 

 

 

 

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