AROUND 20 years ago, I sat in a conference session in Melbourne to hear a very senior OOCL executive bemoan his industry's "irresponsible and unjustifiable" ordering of ever-larger containerships.
The very next day his Hong Kong headquarters announced it had placed orders for a series of 5,300+ TEU vessels, the largest in the company's history and world-leading at the time.
It seems very little has changed in the world of liner shipping in the intervening period: big carriers continue to say one thing and do another, apparently in an unceasing quest for leadership (and to be principal generators of their own disappointment).
Despite recent suggestions by MSC that now was not the right time to be investing in new capacity, chief executive Diego Aponte two weeks ago announced an order for eleven 22,000 teu ULCVs (ultra large container vessels) with South Korean yards, shortly after CMA CGM flagged orders for six/option three of the same size in China.
Just a matter of weeks ago MSC was indicating it would only increase fleet capacity by modifying certain classes of containerships to ship more boxes … and it was reported that Maersk Line was actively discouraging both MSC (its 2M partner) and CMA CGM from placing any new orders.
Now MSC says the newbuilds will simply replace equivalent capacity to that provided by a number of 13,000-14,000 teu ships that are due to come off charter around the time of the ULCVs' 2020 delivery.
What does this mean for shippers? In some ways it's good news, in others not so much.
Under a headline 'Power play, politics and personalities', Lloyd's List (owned by Informa, former owners of Lloyd's List Australia) commented: "In an industry driven by big personalities and fierce rivalries, MSC would never want CMA CGM to seem to have the upper hand.
"The macroeconomics of ordering a new series of outsize boxships, and putting the supply and demand balance at risk, are not the deciding factors here. This is all about preserving the dominance of individual players, and in the container world, Maersk, MSC and CMA CGM all want to be top dog."
The problem is that while these carriers obsess with who beats who, shipper priorities recede into the distance.
The larger the ship, the fewer ports can be served directly. The more ULCVs in service, the fewer service strings (and thus departure/arrival options). The higher the container exchange, the greater the congestion pressure on terminals and associated landside logistics.
Now, while MSC says its new ULCVs will not result in any meaningful increase in trade route capacity – and ships of this size can only trade between the largest, selected ports in Asia and Europe anyway – what happens to all those displaced 13,000-14,000 teu units?
Simply, one way or another, they will be cascaded into other trades – where the same set of outcomes will be replicated. And there they will displace another set of ships to lesser trades, repeating the scenario over and over.
By 2020, Maersk will have 31 ULCVs of greater than 18,000 teu capacity, MSC will have 33 and CMA CGM 21, based on analysts' current figures. COSCO has 21 on order and Evergreen 11.
Maersk paid a reported US$180 million each for its first series of Triple Es, MSC is said to have settled with the Koreans at US$163 million per vessel, and CMA CGM, depending on whether it opts for LNG-fuelled propulsion, could pay up to US$154 million for each.
These ships need to sail at 90% utilisation to make money, which means carriers must be ruthless in trying to fill them. This often means containers are 'sucked' by relay from trades like Australia's, threatening the viability of direct services.
Manic competition between the leading carriers can and does keep freight rates low for shippers, but shippers can also become casualties of the overcapacity that inevitably results from these massive ego clashes. After a tumultuous 2016 on the Asia-Europe routes analysts reported spot rates had fluctuated by over US$900 per teu in the course of the year. That's no help to anyone.
Meanwhile, OOCL (now in the process of being acquired by COSCO) recently christened the OOCL United Kingdom, the fourth of the company's six 21,413 teu containerships under construction by Samsung. These are – this year at least – the world's largest.
As for those 5300+ TEU vessels, several eventually found their way into OOCL's Australian trades. We may be "15 years behind the times" but that could just be a very good thing.
* Dale Crisp is a regular contributor to Lloyd's List Australia and provides Freight & Trade Alliance (FTA) /Australian Peak Shippers Association (APSA) with communication and content advice and can be contacted at media@auspsa.com