By Dr. Noel Hacegaba
-Acting Deputy Executive Director and Chief Operating Officer Port of Long Beach-
The average size of container vessels calling U.S. ports has grown considerably over the past five years, and the trend towards even larger vessels is expected to continue in the years to come. According to Drewery Maritime Consultants (Solomon 2014), an estimated 42 percent of current ship orders are for vessels exceeding 12,000 TEU (20-foot-equivalent unit).
A review of the average size of vessels since 1980 shows a steady upward trend up until 2010, when the growth in average vessel size outpaced the historical growth in vessel capacity. This sharp increase was driven primarily by the arrival of the 10,000-TEU vessels.
A look at the largest vessel type by year reveals a sharper increase in vessel capacity. This analysis tracks the largest vessel type from each year instead of the average size. From 1970 to 2014, the largest vessel type grew from 1,800 TEU to over 18,000 TEU. This represents a growth in vessel capacity of 900 percent during this period. An 18,000-TEU vessel is three times the capacity of the biggest ships only two decades ago.
The trend towards even larger vessels is expected to continue in the years to come. In fact, Rothberg [Rothberg, S. (2014). “Technologies, Economics and Changes in Selected U.S. Ocean Cargo Flows” ] reports that delivery of the 22,000- and 24,000-TEU ships currently on order may be delivered sooner than expected. Industry observers predict that 22,000-TEU ships could come into service by 2018. And, LR already has a design in place for a 24,415-TEU vessel.
Although 18,000-TEU vessels are the largest in service currently, ships that carry more than 10,000 TEUs are still considered large and have limited options with regard to trade lanes and to ports that can accommodate them. These vessels, for example, are too large to transit the existing, pre-expansion Panama Canal. In 2000, 15 percent of the world’s container capacity moved on post-Panamax (vessels too large to transit the Panama Canal) vessels. That number increased to 44 percent by 2011. The largest container ships serving North America were in the 10,000 TEU range up until 2012 when vessels carrying 12,500 TEUs began calling at the San Pedro Bay ports. That year, the MSC Beatrice arrived at the Port of Long Beach. With a capacity of 13,800 TEUs (1200 feet long, 167 feet wide), it became the largest vessel to call at a North American port.
From a port authority’s perspective, it is important to understand the economic forces driving carriers to expand the capacity of their vessels. According to Brooks [Brooks, C. (2014). “A P3 Revival? Never Say Never, Maritime Expert Says” Journal of Commerce, June 23, 2014], the global recession and a gradual recovery in cargo demand have contributed to billions of dollars in collective losses among carriers in four of the past five years. In the wake of the economic downturn, ocean carriers have responded to competitive pressures by reducing operational costs. Running larger, more efficient ships on major trade lanes is one way they have achieved that. Larger vessels allow for economies of scale, reducing the cost of shipping each container. In addition, new ship designs allow for more fuel-efficient operations. For example, the Triple E class, which stands for energy, efficiency, and environmental improvements, can carry up to 18,000 TEUs. These ships reach up to 1,300 feet long and 200 feet wide. The Triple Es also have a top speed that is less than earlier generations of ships, reinforcing a recent trend in the industry toward slow steaming.
With slow-steaming, carriers reduce vessel speed in order to burn less fuel, thereby reducing emissions as well as operating costs. Five years ago, the average speed of the largest vessels at that time was in the range of 20—25 knots. Today, the average speed has dropped to 15—17 knots. But, while slow steaming has cut fuel costs for shipping lines, Streng [Streng, M. (2012). ‘Slow steaming: an economic assessment of lowering sailing speeds on a supply chain level’, Master Thesis Urban, Port and Transport Economics, Erasmus University Rotterdam] also suggests that the cost savings achieved by the larger vessels are not obvious for the entire supply chain. Due to the increase in transportation duration, the capital and insurance costs of the goods transported have gone up. Still, any reduction in fuel usage can lead to significant cost savings as some carriers spend up to $4 billion in fuel each year.
It is important to note that the impact of the mega ships extends well beyond the major trade lanes and the biggest ports. As the larger vessels visit the biggest ports, the cascading effect, or “the process of moving larger vessels from main trades onto smaller trades as they are displaced from the main trades by the entrance of even larger ships, such as the Triple-E” [van Marle, G. (2013). “Small ports feel the heat from big box ships as cascade effect begins.” , The Loadstar, July 1, 2013].
Under this scenario, the biggest ships like Maersk Line’s Triple E vessels are poised to dominate the Asia-Europe route, which will move the next-largest group of ships to trade lanes like Asia-Africa, Europe- South America, or intra-Asia routes. In summary, “the 18,000 TEU size has implications for all ports around the world, not just the ports that are going to serve them” (van Marle 2013).
Noel Hacegaba serves as the acting deputy executive director and chief operating officer for the Port of Long Beach. He oversees the daily business activities of the Port, which includes four bureaus, 17 divisions and 550 employees. The above commentary is an excerpt from a white paper Hacegaba wrote examining the effects of the mega vessels and related alliances on U.S. ports authorities. The paper also discusses the role of the port authority in navigating these changes.
