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Shpg Gazette 20/2/14 - Damned if you do, damned if you don't - trans-oceanic carriers forced to take the mega ship plunge

ON one hand, it seems sheer madness to order more ultra-large container vessels

(ULCV) providing the world what it plainly does not need. On the other hand, it also looks like the only way for second tier liners to stay in trans-oceanic container shipping business.

 

While it is counter-intuitive to add capacity in a world awash in unwanted slots as ships are being cascaded down to sparse emerging market north-south trades, is there much of a choice?

 

Now that the Big Three in the P3 - Maersk, MSC and CMA CGM - are to bundle themselves into what amounts to a single Asia-Europe operational alliance with their 13,000 to 18,000 TEUers.

 

Economies of scale are such that slot costs will be dramatically reduced by big ships. There is already respectable talk of 22,000 and 24,000 TEUers that will cut slot costs still more. It's been suggested that the P3 members will have 22,000-TEU ships in service by 2018.

 

So what should Hapag-Lloyd, OOCL, MOL and Hamburg Sud do? If they don't go bigger, they might as well focus on feeders the monster ships will need to cut down port calls and speed turnarounds.

 

SeaIntel Maritime Analysis headlined its commentary on the P3, saying "G6 and CKYH need ULCV shopping spree" because P3 megaships will have big cost advantages. By the time the P3 takes effect late next year, the average vessel size in that alliance's 255 ships will be 25 per cent larger than ships in the CKYH alliance and 12.5 per cent larger than ships in the G6, said SeaIntel.

 

Once all the currently ordered mega ships are delivered by 2016, the P3's advantage will have increased to 22 per cent compared to the average vessel size of the G6 and 23.5 per cent larger than CKYH.

 

Said SeaIntel: "The CKYH and G6 alliances need to make a choice in the near future, as to whether they want to be severe unit cost challengers to the P3 alliance in Asia-Europe trade or not? If they want to challenge P3, they need to place orders for new ULCVs within the next year, or otherwise the P3 alliance will have a significant scale advantage for a long period of time."

 

It is hard to disagree, but one suspects European regulators may well find fault with the P3 scheme. While we have had the CKYH and the G6 around for a while without objection, they are small beer compared to the clout of P3, which stands to monopolise the Asia-Europe trade, and dominate the Asia-US east coast trade that stands to increase through the Suez Canal to the detriment of California and the once exciting Panama route.

 

EU regulators may find such prospects unnerving and may pass laws against such unhealthy market movers rightly or wrongly, backed by vociferous shippers ready to blast what they see as uncompetitive behaviour. What carriers and industry spokesmen regard as market discipline, regulators and shippers tend to see as price fixing.