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A QUESTION OF CAPACITY
The impact on shipping costs aside, efforts to reduce sulfur
emissions by ocean vessels will also have implications for
overall available capacity, service strings, transit times, and
port calls, say industry watchers. In a 2019 report titled New
Fuel Regulations for Ocean Carriers Raise Price, Capacity
Issues for Shippers, Gartner analysts David Gonzalez and
John Johnson warn that capacity could tighten as vessels
are taken out of service to be retrofitted with scrubbers.
The report estimates that the scrubber installation itself
could sideline a vessel for six weeks, while the entire process—including product selection, design, engineering, and
procurement—could take as long as 12 months.
More than 2,000 vessels already have scrubbers installed,
costing millions of dollars, the report said. It went on to
say that “estimates call for 4,000 vessels to be outfitted with
scrubbers in 2020,” adding that “the likelihood of tem-
porarily removing 5% to 6% of the world’s 60,000 ocean
[vessels] could impact capacity
and drive up costs.”
Yet even with the prospect
of up to 4,000 vessels being
taken out of service for scrub-
ber refits in 2020, there’s some
question whether, in today’s
market, that will have any
influence at all on capacity and
rates.
Maritime operators already
face a low-growth global economy, slack demand, and stubborn market overcapacity. In
this environment of flat to declining volumes, carriers are
dialing back new ship orders and aggressively cutting costs
to maintain, and even improve, profits. That’s evidenced by
Maersk’s 2019 third-quarter results, where earnings before
interest, taxes, depreciation, and amortization (EBITDA)
in its Ocean segment rose 13%, to $1.3 billion (U.S.), while
revenues were “on par” with the same period a year ago.
And as new containerships get larger and larger, some are
beginning to question whether the largest ships are a step
too far.
“We are in a period of severe overcapacity,” says Lars
Jensen, CEO of SeaIntelligence Consulting, a consultancy
based in Copenhagen, Denmark. “Right now, the order
book [number of new ships on order] is historically low,
at about 11% of capacity, down from 60%.” The 10 largest
carriers, Jensen notes, “basically have no order book of con-
sequence,” a market situation he called “unprecedented.”
Hapag-Lloyd confirms this trend, stating flatly “We
do not plan to add any ships in the near future.” Maersk
echoed a similar position in its recent investor call, saying
“We have no intentions now to invest in large vessels.”
Jensen cites only one carrier, Korea-based Hyundai
Merchant Marine (HMM), as expanding notably, with a
number of vessels in the 20,000- to 22,000-TEU range on
order—with Korean shipyards. “Before they ordered, fleet
capacity was about 450,000 TEU. Now, they’re gunning
to reach a million TEU,” says Jensen about HMM. That’s
potentially a problem in itself, he notes. “If you can get the
money [to build the ships,] you can grow your capacity, but
that does not mean you can generate the cargo to fill those
ships,” Jensen says.
For vessel operators, who were accustomed to a market
that for decades grew at some 9% annually, the slowdown
in structural growth—now projected in the 2% to 3%
range—has dictated a sea change in strategy. Instead of
pursuing volume at any cost to fill ships, “carriers have had
to change their mentality [to one of] increasing the profit of
the containers you actually move,” Jensen notes.
BUILDING BOOM
Yet the slowdown in growth of global container volumes
hasn’t dampened the enthusiasm of U.S. port operators
for expansion. They continue to invest in infrastructure
improvements in an effort to
drive efficiencies and more
throughput—and become the
port of choice for shippers.
Some are seeing substantial
growth even as the global
economy cools.
“Volume has reached record
levels at the Port of Oakland
in each of the past two years,”
While uncertainty over global trade policy casts a shadow
over the containerized trade sector at the start of the new
year, Oakland is pushing ahead with improvements and
expansions.
Its International Container Terminal, operated by SSA,
will install three new 300-foot-tall cranes in the third
and fourth quarters of this year. The investment: more
than $30 million. The first building in Oakland’s Seaport
Logistics Complex, a 460,000-square-foot distribution center, opens this summer. It’s the centerpiece of a major
logistics infrastructure redevelopment project at the former
200-acre Oakland Army Base. The investment: more than
$50 million.
Driscoll adds that another major round of operational
enhancements kicks off this year and will extend for three
years, including grade improvements, road and rail track
relocations to avoid congestion, and its “Freight Intelligent
Transportation System,” a collection of 15 technology
projects designed to improve cargo visibility, send drivers
on the quickest routes, and speed truck traffic through the
port complex.
