Top Ocean Carriers Part III: Is Bigger Really Better?

According to new report issued by The International Transport Forum – an intergovernmental group with 54 member countries within the Organization for Economic Cooperation and Development (OECD) – there are cost savings of mega-ships, but these are decreasing and might not even be realized.

In the report, The Impact of Mega-Ships, many economists contend that doubling the maximum container ship size over the last decade has reduced total vessel costs per transported container by roughly a third.

However, these economies of scale are decreasing with size. Indeed, some analysts argue that cost savings of the newest generation of container ships are four to six times smaller than the savings from the previous round of upsizing. Approximately 60 percent of the cost savings of the most recent container ships are related to more efficient engines…not to size.

In addition, mega-ship development and the related container fleet capacity growth has taken place despite sluggish growth of world containerized seaborne trade.

The transport costs due to larger ships could be substantial. There are size-related fixes 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.

“These annualized transport costs related to mega-ships could amount to $ 0.4 billion, according to our rough and tentative estimations,” say authors of the Transport Forum report. “Roughly a third of the additional expenses might be related to equipment, a third to dredging and another 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.”

Finally, Transport Forum analysts say supply chain risks related to bigger container ships are rising. There are concerns about 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.

“Further increase of maximum container ship size would raise transport costs. So one could wonder if such increases would be desirable,” the report concludes. “The potential cost savings to carriers appear to be fairly marginal, but infrastructure upsizing costs could be phenomenal.”

The long-term view of many industry experts LM spoke with recently suggest that Introduction of one hundred 24,000 TEU ships in 2020 would require substantial investments in those places where these vessels would be first introduced (Far East, North Europe, Mediterranean.

The “cascading effects” – resulting with the introduction of 19,000 TEU ships in North America and 14,000 TEU ships in South America and Africa – would bring into question whether additional investment requirements for cash-strapped carriers would be the new normal

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