Despite economic uncertainties cargo vessels keep growing in size

Despite many doubters vessel sizes in particular in the container sector continue to increase. Last year Maersk Line announced an order of 10 and subsequently another 10 vessels with a reported capacity of 18,000 TEU and length of 400m. At a reported cost of $4bn this is no small bet for the world’s biggest shipping line.

But even if orders for vessels of this size are not going to grow further in the foreseeable future, delivery and orders are already in place for vessels too big to call many of the major ports today.

Speculation as to the impact of this development on sea ports is substantial. To better understand the magnitude and importance to infrastructure investors and ports we sat down with Lars Jensen, CEO of SeaIntel Maritime Analysis and among other positions the previous Director of Maersk Line’s global intelligence and analysis unit for a short Q&A.

Q: Briefly what is the magnitude of this development, can you explain to non-specialists what the difference is between the current situation and say 5 or 10 years back?
A: The average vessel size has been steadily growing for decades – the difference this time is the magnitude of growth in the large vessel segment. If we take a look at the very largest vessels in the fleet. Over the past 20 years, the average nominal capacity of these vessels has grown 6% annually. In 2012, the average size of these vessels will grow by 16%. In other words, these years are seeing an acceleration in vessel sizes for the large vessels which has not been seen previously.

Q: What are your expectations for this development in the future?
A: I believe this rapid increase in vessel sizes will taper off. We will see more large vessels, but for now I think we are reaching a practical limit on the size of the largest vessels. Rather than go for 20.000+ TEU vessels, it is my expectation that carriers will increasingly focus on frequency of services – with the carriers aiming for daily services for the main hubs.

Q: How is this going to impact the future service patterns of shipping lines on the main trade lanes?
A: We will be seeing an increased amount of hub-and-spoke operations. Not because the shippers want it, but because the carriers will be forced by scale economics to do it. To achieve the best economic performance for the big vessels, they will aim to call as few ports as possible – balancing the number of ports with the need to fill the vessels. Additionally, carriers will increasingly be looking to provide daily, or almost daily, services between their largest ports/hubs.

Q: What are the main regional port markets or hotspots that will be impacted?
A: We see two types of main impact. One impact is on the Intra-Europe and Intra-Asia regional feeder trades. As the main deep-sea lines increase their vessel sizes, pursuing scale economics, we believe these regional markets will see the emergence of a few large dominant regional feeder carriers. The other impact is the developments in the Middle East / Indian Subcontinent. As carriers strive to maximize usage of their large vessels on the Asia-Europe trade, they will increasingly use these vessels to carry cargo to/from this region through main transshipment hubs. A good example of this is Maersk Line’s recent decision to close their direct ICON service from India to Europe, and instead use feeder services from India to Sri Lanka and then carry the cargo onboard their Daily Maersk “conveyor belt”.

Q: In terms of the need for new investments in port infrastructure what should ports and investors be expecting?
A: The very large hub locations need to make sure they are able to cater for a “daily conveyor belt” type of operation for the very large vessels – including the ability to rapidly move this cargo to/from the feeder operators. Carriers will become increasingly focused on the ports’ ability to handle the vessel in a timely fashion, as the cost as well as logistical challenges associated with delays increase rapidly with vessel size.

“Smaller” ports – which in this context is ports not catering for the 10-12.000+ TEU vessels – will also need to prepare for the handling of increased vessel sizes, as vessels are cascaded through the trades. As we expect the emergence over the next 10 years of just a few large regional feeder operators, we also expect the size of the feeder vessels to increase significantly.

Q: What are the longer term developments you see in the container shipping sector?
A: The key development we are seeing is what we at SeaIntel Maritime Analysis are labeling the 3rd phase of liner trade. The first phase was the implementation of regular liner services as opposed to tramp services. This phase lasted from the 1800’s to 1959. The second phase was standardization lasting from 1959 to the mid-1990s. This phase focused on establishing industry wide standards all centered around making the 20/40’ containers the single unit everyone could use. The 3rd phase is consolidation. This phase was initiated in the mid-1990s as the standards became ingrained, and the commoditization process gained momentum. We expect this phase to last to the mid-2020s, and by the end of this 3rd phase we will have a market with much fewer – and larger – carriers than we see today.

Want to know more about SeaIntel Maritime Analysis?

Below is a brief piece written by CEO Lars Jensen, for further information please go to the company website: www.seaintel.com.

“SeaIntel Maritime Analysis is a leading provider of intelligence and analysis in the container shipping industry. The focus is on developing in-depth analysis which is based on a combination of solid analytical skills and a long practical experience from working with market intelligence in the industry. The company is founded by Lars Jensen and Alan Murphy who both have a long track record of providing market intelligence and analysis within container shipping having worked for Maersk Line, Youship and The Containership Company prior to establishing SeaIntel Maritime Analysis. “

Michael Pomerleau

Michael Pomerleau

Investment, BD and Commercial

Former Director of Investment and Business Development China and Europe at APM Terminals, Michael works with port operators, investors and owners to maximize investment and portfolio value.

During his career at APM Terminals Michael has worked with portfolio strategy setting, securing terminal investments as well as divestments and business development projects.

Educational background: Master in Finance and International Trade and various management school programs including INSEAD.

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