World News
Drewry: The Gamble on Ultra Large Container Vessels has Backfired
Drewry Shipping Consultants Ltd. (Drewry) this week said weak Q1 2015 demand in the box markets has meant Ultra Large Container Vessels (ULCVs) have failed to deliver on their promise of improved economics for their owners.
"Ordering ships that take years to build is always something of a gamble but, as things stand, the roulette wheel has landed on red when all the carriers had put their chips on black," Drewry said in its latest Container Insight.
"The rush to order the biggest containerships might pay off in the long run but, at present, that gamble has backfired and carriers are faced with overcapacity in Asia-Europe, making it very difficult to see how rates will become sustainably profitable."
Compounding the bad news is the large number of containerships due to be deployed on the Asia-Europe routes in the short to medium term.
Throughout the rest of 2015 630,000 twenty-foot equivalent unit (TEU)s of capacity is scheduled to hit the water from new ships of 10,000 TEU or more, with similar levels slated for 2016 and 2017.
Vessels with 14,000 TEU or greater capacity make up 503,000 TEU of 2015's new capacity, which given the size of the vessels are almost certain to enter the Asia-Europe trade.
Drewry says that "poses a huge risk to carriers in a slowing market" but, perhaps more importantly, as smaller vessels are moved into secondary routes to make way for the new mega-ships, the new 10,000 TEU capacity tonnage will make it harder to cascade those existing smaller ships into other trades.
As for 2018-19, Drewry noted that the order book is already filling up with contracts likely to include some of the world's biggest box ships in the form of new 20,000 TEU capacity vessels for Maersk Line.
It wasn't all bad news for carriers, however, with Drewry noting that Asia to North Europe spot market freight rates finally stopped falling after 14 consecutive weeks, and last week jumped 153 percent.
Ship & Bunker reported last week that Richard Ward, Container Derivatives Broker at Freight Investor Services (FIS), predicted that "as usual" the rate increase will be a short-lived.