Ocean

Ocean Liners: Does size really matter? May 2004

May 1, 2004
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Imagine it's the mid-1960s. You're standing dockside looking out over the water as a new type of ship, a container vessel, pulls into the harbor. It looks massive compared to the other ships around it and is capable of safely carrying goods in an enclosed container. Global shipping has just entered a new era.

The earliest container ships carried about 500 containers, or 500 TEUs (twenty-foot equivalent units, a standard measure) and revolutionized international trade, proving to be an extremely efficient, flexible and cost-effective way to move goods around the world. Containers allowed for multi-modes of transportation from ship to rail to truck. Initially, growth was slow as new ships, given that terminals and dockside equipment had to be constructed. But within the last twenty years, the world container fleet has shown rapid growth and the vessels have continued to get bigger and more efficient as the world's demand for raw materials and finished products keeps growing.

It has been estimated that over the last decade, container handling in ports around the globe has increased by 8 to 10 percent per year. This isn't expected to change any time soon, and as a result the vessels used to ship these goods are continually increasing in size.

As shipping companies increase vessel size, ports all over the world are being forced to adapt. (Photo credit: OOCL)
Today, standing at the Port of Long Beach in California, you can look out over the water and see a vessel that is larger than three football fields and carries 8,000 TEUs. "We are certainly seeing a trend to go bigger," comments Ray Venturino, Assistant Vice President Marketing, P&O Nedlloyd. Currently, P&O Nedlloyd's fleet ranges in size from 1,000 to 6,800 TEUs, although Venturino admits that the company is looking at even larger vessels. "They're bigger, faster and that gives us better control over costs," he says.

The size benchmark is the width of the Panama Canal. A Panamax vessel, which has a capacity of around 4,600 to 4,800 TEUs, is currently the standard shipping vessel. These ships range from 91-105 feet wide, allowing them to just squeeze through the 110 ft. locks along the Panama Canal. These vessels have the benefit of flexibility-because they fit through the Panama Canal, they can be deployed in both the Atlantic and Pacific trades. They can also be used for short haul trips and offer fast on and off-load times because of the lower number of containers they carry. Additionally, because of their size, they can access most ports around the world.

Panamax vessels are still extremely popular and are part of almost all ocean fleets; but the scales are shifting toward bigger vessels.

The monsters seen on the oceans today are called post-Panamax vessels and are capable of carrying 6,000 to 8,000 TEUs. Too wide to fit through the Panama Canal, they must use other shipping routes. Also known as single ocean carriers, they are used on routes between Europe and Asia, the Eastern U.S. and Europe, and the Western U.S. and Asia. The technology and design features of the newest post-Panamax vessel are state-of-the-art.

OOCL, one of the big global shipping lines, operates vessels that are 8,063 TEUs, the largest liner ever built by Samsung Heavy Industries. They include larger marine engines that meet all environmental requirements, including emission controls, and are fuel efficient. The latest in information technology is used in the engine control systems, allowing the engine and other auxiliary machines to be controlled at various points aboard the vessel. With these high-tech innovations, a single large container ship will often have a crew of only twenty, making these ships extremely cost-effective to operate.

Cost savings and increased productivity make the post-Panamax ships very appealing. Simple economics tells that it is less expensive to ship one large load rather than several smaller loads, given the vessel operating and freight handling costs. Overall, the larger vessels result in an approximate savings to the operator of 20 percent. To ensure that the capacity of the larger vessels is being maximized, the shipping lines have formed alliances, or vessel sharing agreements, that allow different companies to consolidate loads onto a single ship. The larger volume can fill and ensure that the larger vessel is operating at full capacity, while offering more shipping options to customers. "It's a better utilization of the fleet," says Venturino. It also helps to reduce costs and makes the sipping lines more efficient.

Post-Panamax vessels today make up about 25 percent of the total world container fleet by capacity. That number is expected to increase, largely due to the continual expansion of trans-Pacific trade. "Over the past three years, demand has exceeded capacity," says Jim McEwan, Director International Freight, PBB Global Logistics. M.K. Wong, Director of Marketing, OOCL, agrees, observing that the industry has enjoyed double digit growth over the past year and calling this increased demand the "China Effect."

Expectations are that ships will keep getting bigger. Lloyd's Register Group, an international risk management organization with expertise in the maritime trade, believes that by the end of 2010, there will be orders for vessels with carrying capacity exceeding 12,000 TEUs. Furthermore, there are no technical reasons why the vessels cannot get larger, although at some point, the costs of constructing and operating a mega-vessel will begin to outweigh the economic benefits.

Is bigger better?

Despite the undeniable growth in the container ship size, there is certainly not universal agreement that bigger is better. Shaul Cohen-Mintz, President of Zim American, says his company has no plans to increase beyond the Panamax size. "If the Panama Canal gets bigger, then we will," he says. That's not as crazy as it seems-Cohen-Mintz says there has been talk about building a new system of locks, but that would be a multi-year, multi-billion dollar project. Until then however, Panamax vessels certainly offer flexibility, and unlike their larger cousins, are not limited in the ports at which they can call. Cohen-Mintz feels that with the bigger ships, there are several other considerations, including environmental, security and logistical issues, which need to be carefully evaluated.

These logistical issues extend to the dockside. As the shipping companies increase the size of their vessels, ports all over the globe are being forced to adapt. "Our volume of container throughput for 2003 was 1.69 million TEUs, which was an increase of 6 percent over 2002. Yet at the same time, the number of ships declined," says Byron Smith, Public Relations Manager, Port of Charleston. Art Wong, Media Relations Manager, Port of Long Beach, has seen similar changes. "We have two or three lines bringing in 8,000 TEU vessels," says Wong. Put two and two together and you know that the vessels have to be getting larger.

In order to accommodate these bigger ships, two basic areas need to be considered: water issues and terminal infrastructure.

On the water side, many ports are not open to the sea, which makes it extremely difficult for these ships to call. McEwan mentions Liverpool, where the largest ship that can be accommodated is 4,000 TEUs and even then it can be a tight fit. "There are places where there are only inches for the vessel to get through," he says. According to McEwan, the channel entries for most ports were built for 4,000 TEU ships. Entrance channel width and depth, berth depth and length, channel depth, and the elimination of obstructions above and below the water are all important considerations in the size of a ship that can be received. Some ports, such as the Port of Long Beach, enjoy the natural advantage of deep water. Others, such as the Port of Charleston, have embarked upon multi-million dollar harbor development projects in order to meet the water requirements of the larger vessels.

On the terminal side, says Smith, there must be larger cranes, better computer systems to manage throughput and more space in the terminals. Most ports operate on a landlord/tenant system, where the port leases space to the shipping line, which is responsible for building and maintaining their own terminals. As the size of the vessel increases, the terminal operators are not only adapting their operations, but are increasing their size. Art Wong describes Hanjin's current project at Long Beach where the ocean freight company is building a 374-acre terminal, the largest at the port.

But there is only so much space to be had, especially in areas such as California and New York where the cost of real estate is very high, and availability is very low. To respond to these limitations, The Port of New York is coming up with innovative solutions. Rather than unloading containers on site, the port has established a barge service to the Port of Albany. Containers are taken off the ship, loaded onto a barge and shipped to Albany where the containers are then emptied, explains Steve Coleman, spokesman for the Port Authority of New York and New Jersey. There are plans to expand this service to other nearby ports. "We are looking to improve productivity so that limited space can accommodate more containers," says Coleman.

Art Wong faces a similar problem at the Port of Long Beach. He feels that technology will play a key role in solving the issue of limited space. "Overseas, they tend to stack containers higher and use more technology," says Wong. That's less of an option for him. Instead, he sees terminals heading towards more of a 24/7 operating system, allowing for more efficient use of the limited terminal space.

OOCL's M.K. Wong raises the issue of freight discharge time, citing as an example of the maiden voyage of the OOCL Long Beach. "After all the clapping and cheering, our operation colleagues had a big headache. To berth and unload took five days." Post-Panamax vessels carry thousands of containers, which take time to load and unload. "There is a five day norm to discharge a post-Panamax ship, other ships take two days. The berth needs to be long enough to accommodate two ships. If not, the terminal can only handle one vessel per week," says M.K. Wong. At that rate, productivity gains can be quickly lost.

Still, there's little doubt about where shipping is heading. With the growth of global trade expected to continue upward, there appears to be no real end as to how large these vessels can get. "We will continue to see more and larger ships," says M.K. Wong. Wong says that most Asian shipyards, which are where the larger vessels are constructed, are full and there seems to be no decline in demand. The only restrictions will be economic and demand driven. "The reason ships are bigger and terminals are bigger is because consumer demand is getting bigger," says Art Wong. Consumers seem to be insatiable, and if the growth in world trade continues to grow to meet this demand, it won't be long before we'll be standing on the dockside seeing super post-Panamax vessels pulling into the harbor.

Sidebar: Where Have All the Shipyards Gone?

After WWII, Europe and the United States largely dominated both the shipping and shipbuilding industries. "It used to be that the major ship builders were located in the UK, Germany and Poland," says Jim McEwan, Director International Freight, PBB Global Logistics. However, over the past few decades increasing labor and operating costs in North America and Europe have resulted in much of the building activity shifting to Asia.

A look at the world's shipyards will take you to China, Hong Kong, Korea and Japan who together account for almost 75 percent of the world's shipbuilding output. China is becoming a shipbuilding giant, largely due to lower costs of both labor and steel fabrication. Many shipbuilders around the world feel the China has an unfair advantage. "The government subsidizes the steel industry in China; they subsidize the shipyards and lines," says Art Wong, Media Relations Manager, Port of Long Beach. The Chinese government has identified shipbuilding as a growth industry. Currently, the country ranks as the world's third largest shipbuilder-the government aims to become the world leader and is supporting growth efforts through both their policies and subsidies. This means that the incremental cost of new, larger ship in China is not much more than a smaller ship. Many argue that it is impossible for other nations to compete.

Both builders and buyers are positioning themselves to catch this surging wave. Cardiff-based Graig Shipping plc and Copenhagen-based Carl Bro a/s have launched a joint venture to provide a full ship design service out of Shanghai.

"Chinese shipyards are set to double their share of the world new building market," said Hugh Williams, CEO of Graig, at the time of the announcement last fall. "Chinese yards are moving to a new level of technical sophistication, increasing the need for practical and innovative design work," added Niels Chr Engbjerg, Director of Carl Bro, who has already designed 49 ships built in China. "The combination of global design expertise and experience with Chinese yards means that owners can now choose to build in China with greater confidence."

Lending credibility to this prediction, world shipping giant A.P. Moller-Maersk Group announced in late February that its orders of vessels from China has now reached 50, making the Danish-based group the largest foreign buyer of vessels built in China.

To add fuel to the fire, the world's largest shipyard is currently under construction at the mouth of China's Yangtze River with an expected completion date sometime in 2015. Until that date, Hyundai Heavy Industries enjoys that reputation with its shipyard in the city of Ulsan.

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