ASCELAADVISORS’ NiveshChaudhary explains why ports around the world must confront the increasing size of container ships..

The global shipping industry is currently witnessing massive consolidation aimed at improving efficiencies and competitiveness, all the while dealing with uncertain market conditions.

From April 2018, the Ocean Network Express (ONE) alliance — an alliance between “K” Line, Mitsui O.S.K. Lines (MOL) and NYK — commenced commercial operations. The alliances ONE, 2M (Maersk and MSC), the Ocean Alliance (CMA CGM, including APL; COSCO, including OOCL; and Evergreen), THE Alliance (Hapag-Lloyd, including Hamburg Süd), and Yang Ming represent nearly 80% of global container trade and roughly 90% of container capacity.

With some of the major shipping lines scheduled to add significant capacity to their fleets in 2018, it would be interesting to see how these alliances manage to fill a 20,000 teu ultra large container vessel.

Shipping lines need to be able to mitigate a huge underutilisation risk if anything goes wrong. These ultra large ships need to command high utilisation rates to achieve cost savings and reap promised benefits. Moreover, these are ships that are larger than the expanded Panama Canal can accommodate.

The alliance reshuffle will no doubt have a significant impact on the way ports are managed worldwide. The port of Singapore, due to its scale and geographical significance, is set to benefit the most. To remain as connected as ever to the world and to stay ahead of the game, Singapore is investing heavily in cargo handling capabilities.

Despite the current slowdown in the shipping industry, Singapore has maintained its position as a global port hub and an international maritime centre. It is already the world’s second-busiest port, with an average of 60 vessels calling daily and handling around 34m teu in 2017. The multi-billion-dollar project at Tuas (seen as an expansion of Port of Singapore) will increase the port's capacity to 65m teu. The mega port is due to be completed by 2040 and is designed to accommodate 24,000 teu ULCVs, with its long linear berths and deep-water capabilities.

European response

European ports such as Rotterdam, Antwerp, Felixstowe and Hamburg are also investing heavily to be included as a port of call on mega-ship rotations. Rotterdam and London are installing new cranes to offer a high level of automation as well to meet the turnaround requirements.

When mega ships call at the port, they need larger container gantry cranes, a larger storage yard, and better inland distribution. All this requires significant investment in the port and hinterland infrastructure. To date, only a little over 20 ports in the world can accommodate ships of more than 18,000 teu and more than half of these ports are in Asia. As container ships of more than 20,000 teu are fast becoming the norm, globally more and more ports will have to invest in upgrading cargo handling infrastructure.

Container terminals have historically built berths to be anywhere between 300 metres and 360 metres, so the new generations of ships have become too large for contemporary berths. Moreover, these mega ships introduce new levels of congestion and require more land, and more labour or higher levels of automation. High level and long-term market projections suggest that by mid-century, international trade could require container ships of up to 35,000 teu capacity.

ULCVs are likely to strengthen the hub-and-spoke model of container operations, which provides market coverage to a maximum number of ports.

Mega-ships bring lower unit costs for the vessel network (ships, bunkers, port and canal transit costs). However, the higher economies of scale closely associated with mega-ships mean that fewer ships can operate in a market of a given size.

Global shipping dynamics are changing fast and so too is port infrastructure. Ports which do not have access to capital or are facing limitations on physical expansion may end up forced to focus on smaller ships. Those ports need to prepare themselves if they are to become future proof.

Nivesh Chaudhary is Infrastructure Advisory director at ASCELA ADVISORS, a management consulting firm providing independent strategic insights.