‘Bigger boxships not better with current market conditions’

THE assumption that a larger containership always results in lower operating costs is being challenged by the prevailing market dynamics, Maersk Line has said.

Global Chief Operating Officer  of Maersk Line, Soren Toft, was quoted as saying in a report put together by Seatrade that: “Previously, the bigger the ship the lower the cost, but what we are seeing right now is a phenomenon of very depressed time charter rates and very low bunker cost.

“So, part of the equation of going from a 6,000 Twenty foot Equivalent Unit (TEU) vessel to a 10,000 TEU vessel in a trade is being challenged because of these dynamics.”

Toft  also pointed out that with a bigger ship you had to call more ports and make more contingencies, “So there is much more to this a bigger ship is always better.”

One of the few bits of positive news Toft was able to give in regards to where the market was headed was that the bunker price is currently in the range of $200 to $220.

He said: “The general trajectory we see for rates in the liner industry is for a slow erosion of rates”.
Indeed, AP Moeller-Maersk no longer have the largest ships in world in TEU terms, according to Industry Tap.
Already,  Maersk ships have been surpassed by the CSCL Globe, MSC Zoe, and MSC Oscar, which are larger in carrying capacity at 19,100 TEU, but not in length which is the same at 1,312 feet (400m).

The top four  largest container ships are the MSC Switzerland’s MSC Oscar, MSC Oliver, MSC Zoe, and the MSC Maya, all of which are 1,297 feet (395.3m) with maximum carrying capacities of 19,224 TEU. The next 4 largest ships are owned by CSCL China and include the CSCL Pacific Ocean, CSCL Indian Ocean, CSCL Atlantic Ocean, and CSCL Arctic Ocean, with a carrying capacity of 19,100 TEU.

The trend toward huge ships began in the 1980s when the first Panamax was built, expanding ships from 705 feet and a maximum of 2,500 TEU to ships as large as 950 feet and up to 4,000 TEU. Post-Panamax and Post-Panamax Plus ships occurred from roughly 1990 to 2005, which saw ships up to 1,100 feet long with a carrying capacity of up to 8,000 TEU. Over the past 10 years, ship sizes have ballooned to 1,312 feet with maximum carrying capacity of 19,224 TEU.

According to Alpha Liner, there are currently 6,096 ships active on liner trades with 20,312,469 TEU. APM-Maersk’s fleet of containership with a total capacity of 2.99 million TEU has a 14.7 per cent market share of the world liner fleet in TEU terms. In second place with 13.4 per cent market share is MSC followed by CMA CGM with an 8.8 per cent share.
Meanwhile, Maersk recently  lowered its expectations for Maersk Line’s business results for  the year 2015 amid depressed market.

The previous expectation, as announced in the quarter two report  was based on an underlying result contribution from Maersk Line above $ 2.2billion.

However, this has now been reduced to $1.6billion: “The group’s sensitivity guidance for the last six months of 2015 states that a general decline in the freight rate of  $100 FFE will impact Maersk Line’s result negatively by around $ 0.5billion  and that a volume reduction of 100,000 FFE will have a negative impact of around $0.1billion,” Maersk said in an announcement.

Nevertheless, Maersk said that all other business units maintain their result guidance for 2015.
“It is regrettable that we have to adjust our expectations for the 2015 result. All of our business units delivered a positive result in the third quarter, despite difficult conditions across our industries,” says Maersk Group Chief Executive Officer,  Nils S. Andersen
According to the BBC, the  group’s preliminary reported result for Q3 is $778m (USD 1,5b) with an underlying result of $1.3billion). The preliminary reported result for the first nine months is $ 3,436m (USD 5b) with an underlying result of USD 3,080m (USD 3,7bn).

Maersk attributed the downturn to deterioration of the container shipping market beyond the group’s expectations especially in the later part of Q3 and October which are not expected to rebound in 2015.
“Maersk Line has over the years taken steps to ensure a cost effective and resilient operation, but the current deterioration in the container shipping market is impacting also our business,” says Andersen.