Consolidation Brings Bigger Container Ships

Tuesday, October 02, 2007
The world’s largest container shipping line — the Maersk Line — pressed into service the largest container ship Emma Maersk in September 2006. At 1,58,000 DWT, a length of 397 m, width of 56.4 m and loaded capacity of 11,000 TEU, this was one of the eight ships ordered at one stroke. Eyebrows were raised at that time in container shipping circles whether this venture would prove to be a successful one or not. But the critics have been proved wrong. Emma Maersk has been operating in the Europe-Asia trades for the last one year to almost 100 per cent of its capacity, giving the Maersk Line considerable economies of scale that other lines will not be able to achieve at least for some years. The competitors have been watching the performance of Emma Maersk intensely and on their finding that bigger and larger ships have been making handsome gains, apart from becoming market leaders, there has been an unprecedented new build-order frenzy that has left the container shipping industry spell-bound. By the end of June 2007, the world order books of container ships reached 1,259 vessels, representing 51.1 per cent of the active cellular capacity of container ships that are already in operation. As on July 1 2007, the fully cellular fleet reached 4,098 ships with a total capacity of 10.08 million TEU (equivalent to 15.75 per cent growth over the last 12 months). Maersk Line took delivery of another titan Ebba Maersk, the fifth in a series of eight vessels already ordered — quietly increasing the size from the original capacity of 11,000 TEU to 12,508 TEU from its Odensa-Lindo Shipyard in Denmark. In its quest to remain world’s No. 1 carrier, the Maersk Line contracted with Bertram Rickmers four 13,100 TEU vessels on charter for a period of 10 years with an option for two consecutive extensions of 30 months each. Another four are thought to be in the offing. Soon after Maersk Line’s bombshell, the second largest container shipping line, the Mediterranean Shipping Line, is reported to have quietly upgraded the size of a series of 9,600 TEU ships already on order to more than 11,000 TEU. According to one calculation, from April 2007, container ship owners have signed up to at least $16b worth of orders for the new generation of box ships with theoretical capacity in excess of 12,000 TEU. Latest numbers compiled by AXS Alfaliner put the order book for ships in excess of 12,000 TEU at an incredible 98, the bulk of which has been contracted in the past four months and each costing around $160m (about Rs 656 crore). The question that is raised in container shipping circles is whether there will be a matching increase or not in cargo volumes to fill the huge increase in container slot capacity. In fact, cargo volumes have been surging ahead. The Washington-based trade analyst, Global Insight, suggests that the Asia-Europe cargo growth will continue to exceed all expectations and revised the growth rate to 15.5 per cent in 2006 from a lower growth rate of 14.7 per cent. Far Eastern Freight Conference has reported a growth of 21 per cent in the second quarter of 2007 compared with the same period of 2006. From the Far East to the Mediterranean, liftings were 25 per cent higher. Intra-Asia trades are also showing robust growth. In the first half of 2007, Intra-Asia trade grew at a phenomenal rate of 45 per cent over the same period last year. What is discernible beneath this attempt to become market leaders in container shipping is a subtle attempt to consolidate and strengthen the relative strategic positions of the world’s top container lines. An Unctad study indicates that at the beginning of 2007, the top 25 container carriers controlled 84 per cent of the world’s TEU capacity. Maersk accounts for 16.8 per cent of the operated slots, followed by MSC with 9.8 per cent, CMA – CGM 6.55 per cent and Evergreen 5.24 per cent. The combined market share of the top four container shipping lines is now 38.4 per cent, which was only 31 per cent in 2004. Rather than being concerned about global levels of concentration, most small and medium-sized shippers are interested in the market power of carriers on individual routes or in individual ports. Research by Unctad suggests that up to the beginning of 2005, the number of carriers offering services at individual ports had continued to increase despite the global process of concentration. While globally there are fewer carriers today than ten years ago, the same global carriers continued to expand in the new markets. As a result, the number of carriers providing services to a specific port actually increased for the majority of countries. Many important container ports in the world seem to have realized that their port development plans should have an in-built capability to accommodate these giant carriers so that they are not left out in a highly competitive port services market. In view of the heavy capital investment needed to create such terminal infrastructure, governments and port authorities are increasingly making use of the expertise and investment capability of internationally reputed container terminal operators to build, own, operate and transfer such container terminals for periods ranging from 25 to 50 years. The top seven container terminal operators are Hutchison Port Holding, PSA Corporation, APM Terminals, DP World, Eurogate, SSA Marine and Cosco-Pacific. According to an Unctad study, in 2006, the combined market share of the top four container terminal operators was 44.2 per cent compared with 34 per cent in 2003. Despite this global process of concentration among container terminal operators in most ports of the world, new concessions and new terminals are effectively leading to enhancing competition among port operators on a local scale. In fact, the growth of the global operators is partially the result of effective policy measures which, in turn, help enhance inter-port and intra-port competition and market contestability. In most countries, a fast growing market and increased inter-terminal and inter-port competition seem to have helped mitigate the potential impact of concentration among port operators. [Source: http://www.thehindubusinessline.com]
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