World’s Biggest Ship Title Shifts Monthly as Rates Fall: Freight

 

 

 

5:01 PM CET
March 5, 2015
 

Daewoo Shipbuilding & Marine Engineering Co.

Ships sit under construction in a dry dock at the Daewoo Shipbuilding & Marine Engineering Co. shipyard in Geoje, South Korea. Photographer: SeongJoon Cho/Bloomberg

With weak freight rates encouraging shipping lines to send as many goods as possible in a single voyage, Mitsui O.S.K. Lines Ltd. is buying six ships capable of carrying 20,100 20-foot containers, enough to fit about 203 million iPads. Four are being built by Samsung Heavy Industries Co., the world’s third-biggest shipbuilder, and two will be built by Japan’s Imabari Shipbuilding Co.

The seaborne arms race comes even as overcapacity has led to a plunge in shipping rates since late 2010 and four straight years of losses for the industry. Some lines have responded by driving their vessels more slowly to save fuel and by scrapping older, less efficient ships. Others have decided to go as large as possible to cut costs by as much as 30 percent per voyage.

The vessels for Mitsui O.S.K. will be 400 meters long -- equal to four soccer fields, longer than the Eiffel Tower is tall -- and 58.8 meters wide, Samsung Heavy said March 2. They also will have fuel-saving features. Mitsui will receive the ships by August 2017.

Mitsui O.S.K. believes switching to larger ships “will enhance our competitiveness,” Tetsutaro Kozai, assistant manager of the company’s public relations office, said in an e-mail to Bloomberg. The company expects the new ships it has ordered “will be the largest in operation for some time,” he said.

Mitsui O.S.K. shares closed 1.1 percent higher in Tokyo Friday at 446 yen, at one point reaching their highest level since January 2014. Samsung Heavy gained 3.3 percent in Seoul to 20,650 won after reaching their highest point since Dec. 26.

Samsung Heavy expects more 20,000-container vessels will be ordered in the first half of this year because of the economies of scale they offer, the company said in an e-mail to Bloomberg.

Whether ship sizes continue to grow depends on builders finding ways to make even larger vessels that will be structurally sound amid the punishment of rough seas. Ports will need ever-deeper shipping lanes and terminal operators will require cranes capable of stretching all the way across the wider decks.

That could be a problem for ports on the U.S. West Coast, where Los Angeles and Long Beach, California can’t handle ships holding more than about 12,000 containers. That -- plus the fact that there are no ports of call between Asia and the U.S. West Coast -- means the supersize vessels mainly ply Asia-Europe routes.

A.P. Moeller-Maersk A/S started the recent trend toward bigger vessels in 2011 when it ordered 20 “Triple-E” ships from Daewoo Shipbuilding & Marine Engineering Co. At the time they were the biggest vessels in the world, capable of carrying more than 18,000 20-foot containers each.

A ship of that size can cut costs by about 30 percent per trip compared to a 13,000-box ship, based on a bunker fuel price of $600 a ton, according to Drewry Maritime Equity Research. Even at current fuel prices -- $393.12 a ton as of Thursday in Singapore -- a larger vessel is still about 15 percent cheaper per voyage, Drewry said.

Most vessels used now on the Asia-Europe route can fit 14,000 containers, according to Park at Hana Daetoo. There currently are more than 100 of these ships in service, he said.

Maersk Line, the world’s largest container shipping company, currently operates 15 Triple-Es and expects five more to be delivered in the first half of this year.

“Maersk moved the market with big ships, and people are seeing Maersk’s results,” said Rahul Kapoor, a Singapore-based director for equity research at Drewry. “So people are thinking that’s the way to go forward.”

Maersk Line doubled its after-tax operating profit in the fourth quarter of 2014, to $655 million. Maersk Line will soon place its first order for new ships since 2011, probably in the first half of this year, Nils Smedegaard Andersen, chief executive officer of A.P. Moeller, said last month.

“We may order Triple-E ships, but don’t expect an order of 20 or 30 ships this year because we need to time it carefully so we grow with the market,” Andersen said last month.

The Triple-Es didn’t keep Maersk Line on top of the size rankings for long: China Shipping Container Lines Co. took the title in November with a ship able to carry 19,100 20-foot containers. That was overtaken barely a month later when Mediterranean Shipping Co. launched a ship able to carry 19,224 containers.

In late January, Imabari received an order for 11 ships capable of carrying 20,000 containers. Those briefly became the world’s biggest planned ships -- until Mitsui O.S.K. placed its order this week.

Driving the push for size is the collapse of shipping rates over the past four years. Spot cargo shipping rates to Europe from Asia dropped to $938 per container in the week ended Feb. 27, down 6.5 percent from two weeks earlier and 15 percent lower than at the end of February 2014, according to the Shanghai Shipping Exchange.

Shipping lines have tried to raise rates in recent months, largely without success, and some are trying again to raise rates from March 15, according to shipping-data provider Alphaliner. If anything, though, slowing global demand and new vessels set to enter service this year could drive levies even lower, Alphaliner said in its weekly newsletter.

Hyundai Heavy Industries Co., Daewoo Shipbuilding and Samsung Heavy -- the world’s three-biggest shipbuilders -- have the technology to build ships that can carry as many as 25,000 boxes, suggesting that the title of world’s largest ship will soon shift again.

“There’s no end to it. You will have someone soon displace Mitsui O.S.K. as the largest shipowner,” Drewry’s Kapoor said. “The container shipping industry has always been like they all want to follow the lead. That’s the competitive intensity that’s driving this.”

To contact the reporter on this story: Kyunghee Park in Singapore at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editors responsible for this story: Anand Krishnamoorthy at This email address is being protected from spambots. You need JavaScript enabled to view it. Michael S. Arnold