LONDON: On the heels of the two orders by containership majors CMA CGM and MSC for 22,000 TEU ships, the market fears there is a risk other carriers might follow suit further distorting demand-supply balance, which is already suffering from tonnage oversupply.
To remind, Mediterranean Shipping Company has opted for Daewoo Shipbuilding and Marine Engineering (DSME) to build eleven 22,000 TEU containerships for the company.
On the other hand, French liner CMA CGM has ordered nine 22,000 TEU containerships which will be built by Chinese shipyards Hudong-Zhonghua Shipbuilding and Shanghai Waigaoqiao Shipbuilding (SWS).
Shipping consultancy Drewry believes that the ordering spree for more megaships is unlikely due to a combination of financing constraints, latent market overcapacity and the size of the existing orderbook.
Namely, banks have reduced their financing of the highly volatile shipping sector amid regulatory pressures to increase impairments associated with shipping loans. This has, in turn, resulted in shipping companies having to resort to alternative financing means which are rather scarce.
Furthermore, Drewry doesn’t believe that a new generation of much larger vessels will emerge in the long term. This is attributed to the diminishing economies and the fact that unit cost savings at sea are countered by higher costs at port.
As a result, this is expected to reduce the incentive to invest in ever larger vessels and act as a break on over ordering and excess capacity.
The port sector has already been faced with growing pressure from ever-larger ships as ports had to invest considerably in infrastructure so as to be able to accommodate these giants of the seas.
Between 2000 and 2016, a total of USD 68.8 billion in private investment was committed across 292 port projects aimed at improving port infrastructure and superstructures, according to the data from UNCTAD’s latest report Review of Maritime Transport 2017.
“Pressure from shipping lines to expand and dredge so as to accommodate ever larger ships, especially for transshipment operations, may not be worth the extra cost. Without additional volumes, increasing ship size alone will reduce the effective capacity of seaports as they would require larger yards and additional equipment to handle the same total volume,” the report adds.