The Malacca-Max: Is it here to stay?

 The deep-sea container shipping trade has been facing many rapid changes over the last couple of decades. One of the most important trends of change has been the consistent and steady increase in the container vessel capacity.

This has been brought about by the fact that economies of scale or the cost per slot is at the centre stage of strategic development of shipping lines looking to the future.

The cost per slot comes within the direct control of the shipping line. Hence the cost per slot/per mile is a very significant component in the whole cost equation which is dictated and determined by the shipping lines themselves.

With this core driving factor and the highly competitive nature of the shipping industry, it requires just one player to take the lead in building higher capacity and the other lines would follow when moving to the next “tier” of higher capacity.

This trend has brought about a rapid increase in the number of very large container carriers that are currently being built and, some of which are currently in commercial operation. From an estimated four million teus, new capacity to be delivered over the next four years, 1.6 million teus will be delivered this year where the global container growth has been estimated at 7%. In fact it has now been projected that this growth in capacity will outstrip the demand in 2011.

Again, the global container growth has been estimated at 10% for 2012, with another additional new ship capacity of 1.2 million teus coming on line during that year. The figures available in the public domain indicate that from the ships to be delivered in 2010/11 period, a record 32 ships will be of over 10,000 teu capacity and 62 ships will be of over 7,500 teu capacity, with around 60% of the total orders coming out of South Korean ship yards.

The evolution

 The first generation container ships came into being around the late 1960s and developed in stages up to the post-panamax size and leading to the fifth generation where ships of up to 7,500 teu capacity were built.

From 2007 onwards, the development of ship capacity took a quantum leap and moved to the design and building of the ultra-large-container-carrier commonly known as the ULCC with a carrying capacity of up to 13,000 teus. These vessels came into trade last year and are currently in operation. The top three players with other major consortia are already operating them on the Asia/Europe services.

 Since the “magical” 10,000 teu carrying capacity ship was built and successfully launched, the upward move to the 13,000 teu ultra-large-container-carrier (ULCC) was achieved within a much shorter period.

With the evolution of the ultra-large container ship, the container shipping lines and the ship building industry did not take very long to move a further notch upwards in planning the previously much talked of Malacca-Max size of vessel with a container carrying capacity of 18,000 teus.

 The Malacca-Max

 Malacca-Max is a naval architecture term for the largest ship size that could safely sail through the straits of Malacca. At the initial stages of technical discussions on the design of these ships, the vessel dimensions that were mentioned were as follows:

Length overall: 470 metres

Beam: 60 metres

Draught: 20 metres

Cargo capacity: 18,000 teus

Service speed: 24 knots

 The current design of the Malacca-Max is somewhat different from the above specifications and has now been confirmed as follows:

Length overall: 400 metres

Beam: 59 metres

Draught: 14.5 metres

Cargo capacity: 18,000 teus

Service speed: 19 knots

These changes obviously have been effected not only to meet many of the stringent rules and regulatory requirements with regard to operational efficiency, but more importantly to overcome constraints at various ports/terminals that these vessels will need to call in order to fill the massive capacity.

It is a known fact that building very high container ship capacity is not restrained by engineering or technical limitations, but by the fact that there are serious limitations in the shore side infrastructure.

It has also been acknowledged by the experts that the real challenge is not in building such large ships, but how to operate them efficiently whilst in the port; the most important requirement being to expedite the vessel discharge/load operation.

Trendsetter

 The Malacca-Max size of container ship, which first appeared on the drawing boards of a visionary naval architect way back in the 1990s, has finally started to appear on the keel blocks of global ship building yards.

This development in the container ship building industry is a welcome move to all stakeholders who would benefit immensely from the huge economies of scale that would be achieved by these very large behemoths which would be moving millions of containers across the global shipping routes.

As always, the lead to be the first off the block in launching these leviathans has been taken by Maersk Line, which is now arguably known to be the world’s largest shipping line.

Maersk Line, which has taken the pioneering lead in ordering these ships – 10 in number with options for further orders – has most aptly designated these vessels as the ‘Triple-E’ class of vessels.

The ‘Triple-E’ stands for economy of scale, energy efficiency and environmental improvements, all of which are attributes that would certainly add to their competitive advantage and attract many, if not all shippers and other stakeholders to their fold. However, as at now we are yet to see any other shipping lines making a beeline to the builders to sign on just yet for this capacity of ships, although some lines are understood to be in discussions with the ship building yards. With costs per slot said to be 30% cheaper than the nearest rival capacity, the Malacca-Max operators will certainly have a massive advantage over the competition.

 Is the timing right?

 The interesting feature of this development is the fact that the shipping lines have decided to take the ‘plunge” and build these monolithians in less than two years after suffering the worst ever shipping crisis during the recent global economic downturn.  It was during this shipping crisis that some freight rates came to zero levels and there was more shipping capacity laid up and idling than there were ships carrying cargo around the world.

During this crisis period, experts made predictions of large shipping lines “going under” and also talked of mergers and acquisitions for consolidation – none really materialised. It is true that many large carriers experienced serious financial implications and were forced to restructure both financially and management wise. But all of the larger 10 to 15 players survived through that ‘tsunami,’ albeit with some red bottom lines.

This could of course be attributed to the fact that the over capacity situation was self-inflicted by the ever-competitive lines themselves, by going in for new buildings of very large capacities, which were scheduled to come on stream almost simultaneously.

The ship building yards made their contribution to minimise the negative impact by providing an escape route via renegotiating payment schedules and rescheduling the initial delivery dates. This of course was done with foresight with a view to avoid the cancellation of pending options and new orders which would have been a sine qua non given the situation that the shipping lines were facing at that time. The building yards in fact, by accommodating the new payment schedules requested by the lines, brought about a win-win for both parties.

Are the ports/terminals ready?

 The issue that would then face the owners who dare to take the challenge and build these Malacca-Max carriers would be to identify the ports that would be able to handle these vessels. It has been mentioned that at present it would only be Shanghai and a couple of other ports in China, Singapore and Rotterdam that could service these vessels.

But with a lead time of almost three years for these ships to go into commercial operation, there is no doubt that the other competing ports are already doing their homework on how best to attract these vessels to their respective ports.

It will certainly be a formidable and highly capital intensive challenge to meet the demands and service requirements of these vessels. The terminal operators themselves will need to do their numbers to complete a proper evaluation to be convinced of the required investments.

They of course have another option, which is to continue as they are and service the new niche market of ‘very large container ships’ that would cascade down as ‘feeder ships’ to feed the Malacca-Max vessels, which would only be calling a few selected ports by default.

The famous saying that ‘ships will go where the cargo is’ will not apply in this instance as these ships will not be able to physically enter most of the ports that generate origin/destine cargo – with Indian ports being one classic example from this region, based on the current infrastructure.

(The writer is a Fellow of the Institute of Marine Engineering Science and Technology – FIMarEST, UK and a Fellow of the Chartered Institute of Logistics & Transport – FCILT, UK.)

References

www.imarest.org

www.maerskline.com