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Friday, 20 September 2013

Overcapacity be damned! Smaller players buy mega ships to join big leagues 
ROCK bottom shipyard prices, a desire to cut fuel burn and a desire to join the big leagues is driving smaller shipping lines to buy mega ships despite the global overcapacity dogging the market, says a recent report.
Thursday, 19.Sep.2013, 21:47 (GMT+3)


Overcapacity be damned! Smaller players buy mega ships to join big leagues


ROCK bottom shipyard prices, a desire to cut fuel burn and a desire to join the big leagues is driving smaller shipping lines to buy mega ships despite the global overcapacity dogging the market, says a recent report.

"The recent surge in new vessel orders at a time of industry-wide overcapacity suggests that market fundamentals are no longer the main driver," said an article in Maritime Reporter & Engineering News of Boynton Beach, Florida.

"Even when the most recently ordered ships are delivered in 2016, Europe and the US are still likely to be climbing out of recession, which means that capacity in the east-west trades will continue to outstrip demand," the article said.

"Smaller carriers now see an opportunity to gain a competitive edge over the big three at last, and have not been slow to take advantage of it. For example, CSCL's recent order for five 18,400-TEU ships, the first of which is due for delivery in 4Q 2014, each costing US$136.6 million, 26 per cent less than Maersk's twenty 18,000-TEU vessels, which were ordered in 2011," the article said.

The ships may be the same size but the technically minded journal points to important differences. "Maersk's hull is twin screw, whereas CSCL's has only one propeller, and Maersk's vessels also have expensive on-deck cell guides to facilitate cargo operations and improve safety," the article said.

"The big advantage of 18,000-TEU vessels is fuel consumption. Compared to 13,000-TEU ships, they burn 35 per cent less per container. As fuel accounts for well over half of all voyage costs, it is easy to see why new market entrants can be lured in, including UASC.

"UASC has also expressed interest in ordering four 14,000-TEU vessels. OOCL ordered six 13,000-TEU vessels in 2011, each costing $136 million, and NOL ordered ten 14,000 ships in 2011, costing $154 million, including the upgrading of ten 8,400-TEU vessels, whereas Seapan's order for five 14,000-TEU vessels in March 2013 were estimated to have cost just $108 million each. The price of "K" Line's five 14,000 ships, which were fixed shortly afterwards, is not known.

"Getting credit for such orders is not difficult, despite the fact that ships being ordered do not meet demand growth. But with many ocean carriers being state-supported in some ways, banks appear to see their loans as good as sovereign debt, even though the current surplus of vessel capacity is already destroying profitability through swinging freight rate decreases," the article said.

"This means that maintaining the cash flow required to service ship mortgages is increasingly difficult for carriers. Cash-rich non-owner operators, such as Seaspan, Costamare, Technomar, and Capital Ship Management, clearly see this problem worsening, which explains why they have returned to the market in a big way, providing another factor behind the surge," the article said.

According to Drewry Maritime Research, non-operating owners expect that, as ocean carriers' cash flow gets tighter, the charter market will increasingly be used for newer fuel-efficient vessels, including the wide-bodied 8,000 - 9,000-TEU units currently winning favour in South American trades.


Source: Sea News, Turkey.

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