"We've got to have faith in something bigger." Pete Townshend's words from the 70's and the mantra of box ship operators ever since. 18 months ago we speculated that the era of 20,000 TEU containership-monsters could soon be upon us, and the Maersk Triple E's are almost this size. It seemed a fantasy at the time, unimaginable. But here we are, just a year and a half later. Reports have cropped us stating that yards have completed feasibility studies for 490m LOA 60m wide 24,000 TEU mammoths with the same draught as existing super Post-Panamaxes.
It only seems like yesterday that those mighty Danes inaugurated the Triple E, and now there's talk of them ordering even more
Last month Ship & Bunker reported that the Korea Ship and Offshore Research Institute (Kosori) has begun developing a 25,000 TEU capacity box ship. Crazy.
We've pontificated at length on these pages about the profound and profoundly negative effect this container "arms race" is having on box rates as secondary routes see what were yesterday's monsters cascaded down in the hope that the added capacity will stimulate rates. Midsize vessels have become worthless. Over-capacity is everywhere and lines are struggling to make ends meet with so many empty slots.
But they keep coming. It only seems like yesterday that those mighty Danes inaugurated the Triple E, and now there's talk of them ordering even more. Bunker prices may be low right now, but we all know that is not going to last forever. With the relative safety net of the shipping alliances in place, vessels larger than the Triple Es and CSCL's 19,000 TEU vessels are closer than you think. Believe me.
So where will it stop? 28,000? 30,000?
Terminals have shown themselves agile enough to keep pace with over-reach growth and quay length increases. Ports have by and large been able to ensure the draught restrictions are no problem. Turning radius is again only an issue in some ports.
clearly bunker prices in terms of pure trip cost are not an issue either
The lines themselves do not appear to have any problem financing the hundreds of millions of dollars each for what is basically a very big prefabricated LEGO set for big boys. Nor do they have much issue in creating ships that in some ways merely perpetuate their own box rate nightmare.
Yards like DMSE and HHI have predictably had no problems in building these leviathans even in bafflingly short timeframes. Since taking the decision to go twin screw in some cases, engine technology is now no longer the limiting factor it was. And let's not forget that the 10kTEU+ era has come post 2009 – in a period of very high bunker prices at times. So clearly bunker prices in terms of pure trip cost are not an issue either, as lines evidently prefer to think of per unit cost savings rather than huge upwards steps for trip cost.
I think I know what the stopping point will be though.
I think the P&I Clubs could yet be incredibly influential here. Some of the biggest claims in P&I history have been the big box losses. Hanjin Pennsylvania, MOL Comfort, MSC Napoli, there are many that spring to mind. All involved A/CTLs with total loss of thousands of containers, and liability running into the billions. In each case the international group passed the liability on to the reinsurance market, and then supplementary claims to their members, or drastically increased premiums the following year come renewal time. The market soaked it up, but it hurt. A lot.
I would speculate that a total loss of a 26,000 TEU half kilometre long mega mega post-Panamax with all her cargo would be a loss getting into Deepwater Horizon sort of territory
There will come a point, sooner rather than later when the P&I Clubs are unable to pass their H&M and cargo liability reinsurance to the market because of the scale of potential loss involved. I would speculate that a total loss of a 26,000 TEU half kilometre long mega mega post-Panamax with all her cargo would be a loss getting into Deepwater Horizon sort of territory, especially if there was significant loss of life or a major bunker spill of thousands of tonnes of fuel oil involved. Many billions and billions of dollars, certainly.
The market will price it as it always does and the lines will have lots of meeting with Marsh, AON and the rest to broker the best deal. But what figure is left on that piece of paper at 3am the day of the deadline will have to be absorbed. As ships get bigger this figure gets much greater. At some point one of today's really massive 12-14,000 TEU vessels will be lost and the figure on the piece of paper goes up.
Suddenly you can price it yourself but can you actually reinsure it? Yes always, but at what price? A reinsurer may cover the excess with your P&I Club for your five 24,000 TEU vessels but then you want to order ten more to keep up with the Joneses? What then? And if another line loses one at sea with all her cargo and the entire market is shaken to its core at the scale of the loss? Appetite goes drops like a stone, premiums go up. And up. And up.
There is a breaking point.
At some point the cost savings per unit will be outweighed by exponentially larger insurance cover costs in a low rate environment – the low rates and over-capacity means you cannot pass these costs onto your customers in the same way you can with fuel surcharges. One day the breaking point will come.
And that day will be when the container ships stop growing.