Inside Opinion: Do We Need a Cap on Box-Ship Size?

I was reading the shipping news the other day and they showed some pictures of DSME yard in Korea. You may have seen it. It showed the latest of the Maersk Triple E's fitting out ready for service with not one but three sisterships in various states of build behind her. It feels like they are taking one of the 18,000 TEU behemoths every month.

Sure enough, the same site the following day showed more pictures of yet more mega boxships being built, also on Korea but at a different yard. Other lines have been taking 12-14,000 TEU monsters but only now are we seeing other lines go as large as Maersk have.

Maersk themselves have said that they may not use the full 18kTEU capacity on their Triple E's for some time yet. They were very upfront about the fact that they are probably too large and complex for today's box markets.

Frankly if it was anyone else you would question the planning and strategy of such huge vessels, though with an eye on the next few years you can probably understand it. Other lines have to go as large or larger to stay competitive. It is an arms race.

The issue is that as more and more mega boxship capacity is added at the top end, so smaller mega boxship capacity is pushed onto secondary routes. With the excess capacity, rates are sunk and nobody wins.

Mega Boxships

We are building epic mega boxships because we can, agog at the scale of the technical achievement. Don't get me wrong. I was as blown away as anyone at the Triple E's and E Classes etc before them. I remember seeing the Jervis Bay, of P&O and then PONL and then Maersk service when I was younger just starting out in this industry and being astonished at the size of her. She went for scrap this month.

We create these leviathans forgetting the effect on everything else. It is great when you have the tallest and the biggest and as such the efficiency advantage, but when you do not you are just part of the capacity struggle.

And how long does the crown last for? MSC, CMA-CGM, Maersk, UASC and Hapag-Lloyd amongst others have been passing the crown of operator of the world's largest boxship between them for years, and I bet none have held it longer than a few months at a time. The biggest boxships grow in pace with technology, time moves fast but technology moves faster still.

So where does it stop?

It seems evident to me that in a few years we'll see 14,000 TEU vessels less than five or six years old laid up because they cannot touch the unit cost of the 22 or 24,000 TEU giants. They are too big to put on secondary or third tier routes so what do you do with them? Or the 9,000 TEU post-Panamaxes that are too large for what basically amounts to fourth tier feeder routes?

The simple basic theory is this. Box ship size is growing faster than the markets, and at some stage the tonnage timebomb will go off. You have vessels sitting around that have absolutely no demand, but still have half their 10 year ship mortgage left to pay.

You could sell them to someone who can use them but the money they will fetch on the S&P markets wont cover what you still owe on them. Simplistic but that's the truth. The  14,000 TEU beasts the likes of Yang Ming and Evergreen waited so long to order will be basically obsolete on the main trunk routes they were ordered for by the time they are delivered in all likelihood I think.

Maersk's Triple-E class has 18,000 TEU of capacity.

Can you imagine seeing six Triple E's tied up together in a Scottish Loch in cold layup because they are too small to compete on the trunk routes from US-Asia and Asia-EU, and because they are twin screw and more expensive to run with far higher unit cost than the 26,000 TEU half mile long latest thing? Seeing today's latest 12,000 TEU boxboats going for a one way trip to Alang?

Might sound like Buck Rogers stuff in the far distant future but I assure you that that day is coming and faster than anyone will be able to believe.

By then we'll have untold millions and millions of TEU capacity with no routes to run on a lot of it in negative equity. You think the dry bulk rates crash was bad, just wait a couple of years until the latest round of mega vessels hit the market and we get the next SARS or regional economic problem. The smart box operators may well be quietly trying to pay their mortgages down to avoid taking the big hit when they need to make the tough decision.

Pretty apocalyptic stuff.

A Cap on Box-Ship Size

I really feel that the onus needs to be taken away from the box operators as they cannot be trusted to extricate themselves from the tonnage / efficiency cycle.

Dramatic I know but we need a maritime equivalent of the SALT II treaty for nuclear proliferation to halt this arms race.

I feel the IMO have to step in and propose a cap on box-ship size.

How you find a way of doing that whilst not making it anti-competitive I do not know. How you find a way of avoiding lawsuits from the mega boxship construction yards I do not know either, although I suspect the answer may lie in part in eco-powerplant upgrade retrofitting work, paltry though that sounds.

I also think box majors need to look at a way of setting up a fund to underwrite vessel scrapping. I would further suggest some bright individual should copyright a modular solution for oil / gas storage tanks, hospital, school, prison, power station or hotel accommodation blocks to fit into existing box ship designs to find some kind of after-market for these big ladies available for an absolute pittance very soon.

But action needs to be taken now, or the box majors and as a result the bunker community as a whole will be staring down the barrel of some really big losses.