The rise of the ultra large containership

ULCs have flooded the orderbook in recent years, but the steady flow of larger tonnage on the water could soon increase the pressure on freight rates

The top 10 shipping lines' share of the world fleet measured by teu capacity increased by roughly 15% between 2014 and 2018.This is the result of industry consolidation through mergers and acquisitions, as well as growing trade lane co-operation through alliances, slot sharing and vessel sharing agreements.

While the number of shipping lines has declined, the average capacity of vessels grew 25% between 2014 and 2018 with the number of 10,000 teu ships or larger, defined as ultra large containerships, accounting for 31% of the total capacity deployed in the second quarter of 2018*

Table 1 shows that the Far East -North America - South America trade lane has seen a rapid change inthe deployment of ULCs; by 2018 the number had risen to more than 40 units from zero in 2014.The Gulf & Indian Subcontinent - Far East route has seen deployed capacity by ULCs increase almost fourfold.

Table 1: Top 5 trade lanes bydeployed capacityand number of ULCVs

Looking at the number of ULCVs on order in the last few years, we see that in 2016/17 shipyard orders books had largely dried up, with only 18 orders for ULCVs being placed, a decrease of 84% from 2015/16. However, 2017/18 has seen an increase of 183%, as can be seen in Figure 1, because shipyards offer discounts to prospective non-operating vessel owners and shipping lines

Figure 1: Number of ULCVs ordered by Year Quarter

While there has been an increase in demand for extra capacity through new tonnage, shipping lines have recently been increasing the capacity of existing fleets through 'jumbo-isation'. By raising the bridge of the ships, lines can generate an extra row of containers on board the vessel. Additionally, or instead, vessels can be lengthened by inserting a new mid-section into the ship's hull. Maersk has adopted this approach to enlarge eight vessels of 15,550 teu in its fleet to 16,850 teu in recent years.

Similarly, it was revealed in December last year that CMA CGM would be increasing the capacity of 21 vessels of 14,000 teu capacity to 17,000 teu. Mediterranean Shipping Co plans to do the same with 11vessels of the same size, while there are rumours that other carriers may follow suit.

Table 2 shows the spread of ULCs throughout the container shipping industry, with the 2M Alliance members operating the largest number, accounting for 38% of all the active ULCs. Only 13 shipping lines operate these types of vessels, equating to around 6% of all lines that operate fully cellular vessels. Outside of the three largest east-west alliances, only four carriers operate ULCs.

Table 2: Active ULCV fleet by shipping line and alliance, 2018Q2

The number of ULC newbuildings coming into service in 2018 will add approximately 11% to the existing ULC fleet and 3% to the fully cellular fleet. The large amount of additional capacity coming online in 2018 has resulted in both Cosco and Yang Ming taking the option of deferring the delivery of their newbuildings from 2018 to 2019. Despite the deferrals, Cosco is still expected to be the largest receiver of new ULC tonnage, as seen in Table 3.

Table 3: ULCVs due for delivery in 2018, 2018Q2

Over the last 12 months container shipping lines and alliances have been addressing the supply-demand imbalance, which has plagued the industry, through consolidation. This has led to an increase in spot rates.

These rises, however, are under threat from the increasing number of ULCs expected to come into active service whether through new tonnage or so-called 'jumboisation'.

Additional pressure on rates has come from the recent increases inbunker costs; an expense which lines are passing on to shippers through emergency bunker surcharges. 

*This analysis is based on fully cellular vessels and non intra-regional trades.

First published in Lloyd's List website July 2018