Drewry: Rationale for Bunker Saving ULCVs is Sound, but Box Market Faces "Huge Problem" Absorbing Extra Capacity

China Shipping Container Lines's is the latest in a long line of mega-ships. 

The reasoning behind the recent trend of ordering giant ULCVs (Ultra Large Container Vessels) is sound, but the markets are facing heightened pressure as the amount of new capacity scheduled to enter the market in 2015 remains out of proportion with projected demand for the coming year, says Drewry. 

Even though 2014 saw lower-than-expected fleet growth, Drewry says it was due to the slippage and delay of about 100,000 TEU worth of capacity, which will now be pushed into either 2015 or beyond.

"However, that tonnage still has to be delivered at some point and delays merely push the problem down the road," it said.

Currently, projections for new capacity entering in 2015 rest at 1.85 million TEU, though that number can be further reduced to 1.35 million TEU if accounting for ship scrapping and further slippages into 2016. 

The growth has mainly been fueled by the appetite for the ULCV mega-ships now favoured by companies such as Maersk Line and China Shipping Container Lines, who have begun ordering larger and larger containerships in order to cut down on per unit costs. 

"For individual carriers the rationale for ordering bigger, more technologically advanced and fuel efficient ships is entirely sound as it lowers their slot costs, but it does present the wider industry with a huge problem in how to absorb the extra capacity," said Drewry.

The industry is already contending with crashing freight rates due to overcapacity, which has led to the formations of multiple mega-alliance such as 2M and Ocean Three as companies hurry to slash costs. 

Last month Ship & Bunker's Inside Opinion speculated on what would finally put a stop to the growth in container ship size.