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five years. While deep sea facilities have seen investment, much of India’s box traffic continues to be relayed over ports outside the country. Salalah in Oman and Dubai’s Jebel Ali continue to be important hubs for India’s west coast shippers, with Singapore and Malaysia’s Port Klang and Port Tanjung Pelepas processing significant amounts of cargo flowing to/from the Bay of Bengal. Sri Lanka’s Colombo, which is close to the main east-west shipping lanes, remains a large hub for India’s east and west coasts, with massive expansion plans suggesting this situation will continue.
All strategies to develop a regional transhipment port in India have failed so far. At Vallarpadam, for instance, volumes have proved hugely disappointing despite its location within 100 miles of the main east-west shipping lanes, the involvement of DP World in managing the dedicated International container Transhipment Terminal (ICTT) and India’s strict cabotage rules being relaxed. Accompanying its investment programmers, the new Indian government is putting considerable resources into cutting bureaucracy, reforming administrative processes, ensuring a more robust legal environment and promoting web-based documentation.
Challenges for container shipping in 2015 Overcapacity
The global containership industry has been blighted by overcapacity over the last few years and the problem looks set to continue in 2015. According to Lloyd’s List Intelligence, more than 1.9m TEU is set to be added to the global container fleet this year. This represents an increase in the total container fleet of 10% and many of these vessels will be in the larger size categories. Some of this increase may be offset by scrapping activity but deletions are unlikely to exceed the record levels recorded in 2013 when 2.7% of the fleet was sent to the breakers’ yards. Last year a further 2.3% of the containership fleet was scrapped.
This year, we expect a further slowdown in scrapping activity with 2% of the fleet projected to be sent to the breakers. All this means overall net fleet growth for 2015 will come in at 8.8%, exceeding demand growth of an estimated 6%-7% and heightening the overcapacity situation. But there is one bright light at the end of this very long tunnel, only 900,500 TEU is due to be delivered in 2016, representing fleet growth of 4.5%. Scrapping is likely to drag this figure down further and demand growth is likely to be around the 7% mark once again, analysts say. This should improve supply-demand equilibrium in 2016.
Consolidation
The container shipping industry has been crying out for consolidation as overcapacity and high fuel costs have conspired to cause the vast majority of carriers to report losses. Consolidation among the bigger players is difficult to achieve because of the high level of state ownership and the complexity of bringing two of the largest shipping lines together. That said, deals are being done and Horizon Lines and Matson are the major deals announced in 2014.
This year the larger players may prefer to utilise alliances rather than take up acquisition opportunities, but there are still opportunities with regional specialists and compelling reasons to pursue them. For example, improving economic forecasts is creating more confidence; multinational shippers now require global shipping operations to access the growing middle class in developing and emerging economies; and investment institutions are examining investment opportunities.
Congestion
Congestion, backlogs and bottlenecking have been the subject of much concern throughout 20-14 at ports across the globe. Industry commentators placed the blame firmly on bigger ships and the larger volumes of cargo being passed across the docks in one chunk. However, with vessel upsizing set to continue throughout this year, not just on the major trades but also on the regional and smaller trades due to cascading; congestion and delays at ports are not going away any time soon.
Rates
There is little sign that freight-rate volatility will change on the major trade lanes in 2015 with no indication as yet that lines will change their marketing or sales ploys. With bigger vessels coming on stream, lines will be under pressure to make sure slots are filled and external factors such as congestion, sulphur surcharges and seasonal demand will mean that lines will look to general rate increases to drive box prices.
Ship size
Expect containership capacities to continue to head upwards, with the 20,000 TEU mark surpassed as lines strive for economies of scale and lower slot costs. There are no immediate technical barriers to larger ships, most experts predicting that box ship sizes have further to go before port and land-side infrastructure constraints put a ceiling on slot capacity. That is likely to be around the 24,000 TEU.
The largest ship today is the 19,224 TEU MSC Oscar, which will enter service soon, overtaking China Shipping’s 19,100 TEU CSCL Globe and Maersk’s 18,270 TEU Triple-Es. A number of lines now have 18,000 TEU class ships on order, but these can easily be modified to a theoretical 20,000 TEU, so some of this size may already be under construction. Meanwhile, G6 members MOL and Hapag-Lloyd are both very close to ordering what could be the first official 20,000 TEU ships, with others probably not far behind.
Ship speeds
When vessels started to reduce speed some eight years as oil prices soared, slow steaming was regarded as something of a short-term gimmick, as containerships cut back from around 26 knots to nearer 22 knots to burn less fuel. Today, super-slow steaming is the norm, low charter rates enabling lines to hire extra tonnage to maintain weekly schedules are still save money. But with oil prices on the slide, will ships start to speed up again? Industry leaders are divided; Maersk Chief Executive Soren Skou extols the benefits of very slow ship speeds for environmental and cost reasons, whereas Seaspan boss Gerry Wang expects some acceleration.
In the highly competitive world of container shipping where lines are constantly seeking ways to outflank each other, it seems a fair bet that carriers may take the opportunity to bring back some express services if, as seems highly likely, bunker prices continue to weaken.
Variation in terminal operational performance
Analysis of container terminal assets by consultancy Drewry suggests that operational performance of the world’s container terminals vary widely dependant on location, terminal size and traffic type. These analyses are deliberately distinct from typical service level related measures such as crane moves per hour, Neil Davidson, Senior Analyst in Drewry’s Ports & Terminals practice said.
Instead, they reflect the performance of the most important and expensive infrastructure and equipment assets in a modern container terminal. The Container Terminal Capacity and Performance Benchmarks report analyses the performance of operations in around 500 terminals worldwide over a three year period from 2011 to 2013. The analysis then focuses on three key aspects: the quay line, the yard and the Ship-to-shore gantry cranes. An equipment manufacturer will tell you that a gantry crane can theoretically handle 250,000 TEU per annum and this is true. But our analysis shows that the reality is that on average, the world’s gantry cranes actually only ever handle about half this amount per annum, Davidson added.
The highest performing regions saw up to 70% more TEU per hectare than the world averages. This was largely driven by terminal size with performance of large terminals markedly higher than small ones. Asia and the Middle East where terminals are typically larger, generally achieved higher figures than the world averages. The report also highlights a difference between transhipment terminals and gateway terminal, larger vessel sizes, more container exchanges per call and low container dwell times all led to better performance at transhipment hubs.
The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).
