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Are the BIG ships a Game Changer? The Liners “Post – Manifesto”
By Robert Kunkel
In February of this year, Maersk Line signed a $1.9 billion dollar order for ten 18,000 TEU container ships. Larger than the current 15,550 Emma Maersk class, the new Triple E’s are destined to trade Asia to Europe in a market Maersk claims has a 14% annual growth potential. The ships bring a new standard of energy efficiency to the lane and reportedly change the container game – again. The initial order of ten ships at South Korea’s Daewoo Shipbuilding was backed by options for twenty additional vessels. Maersk claimed they were confident the Triple E’s were the future of box shipping and supported that statement with a decision to spend nearly $5.5 billion dollars. Yet in June, after the release of the controversial “Maersk Manifesto”, they decided to convert only one option and limit the total fleet to twenty. What is more important to note is that no other carrier has announced follow on orders of the same ship size and, in fact, many new building contracts in the larger Post-Panamax sizes are being cancelled.
Are the BIG ships a Game Changer? The Liners “Post Manifesto”
By Robert Kunkel
In February of this year, Maersk Line signed a $1.9 billion dollar order for ten 18,000 TEU container ships. Larger than the current 15,550 Emma Maersk class, the new Triple E’s are destined to trade Asia to Europe in a market Maersk claims has a 14% annual growth potential. The ships bring a new standard of energy efficiency to the lane and reportedly change the container game – again. The initial order of ten ships at South Korea’s Daewoo Shipbuilding was backed by options for twenty additional vessels. Maersk claimed they were confident the Triple E’s were the future of box shipping and supported that statement with a decision to spend nearly $5.5 billion dollars. Yet in June, after the release of the controversial “Maersk Manifesto”, they decided to convert only one option and limit the total fleet to twenty. What is more important to note is that no other carrier has announced follow on orders of the same ship size and, in fact, many new building contracts in the larger Post-Panamax sizes are being cancelled.
Big ships were the talk of early 2011 as several industry sectors searched for new economics or answers to old problems: overcapacity, rising fuel costs and a decrease in demand. By chance, does anyone remember ULCCs? On the dry side Vale’s 400,000 deadweight bulk carriers threatened the Capesize market and brought a new cost structure to the iron ore trade with an announcement of 32 Very-Large Ore Carriers (VLOC) to service the Brazil to China route. The ship construction was spread throughout China and Korea, yet delivery schedules quickly became an issue with the new design. Reports surfaced of new blocks being scrapped due to welding and coating deficiencies at Rhongsheng Heavy Industries in China and the scheduled delivery of twelve Vale VLOCs contracted at South Korea’s Daewoo shipbuilding also slipped. The delays prompted discussions of deferred deliveries by the owner’s hand and those rumors continued when the first vessel, The Vale Brazil, loaded 391,000 metric tons of ore for Dalian, China and mid-voyage diverted to Taranto, Italy as permission to berth at Dalian was not received. Some say the decision was influenced by China’s domestic steel industry and others reported technical problems. Vale claimed it was nothing more than a commercial decision to support its European customers and utilize one of the ten ports capable of handling these monsters. Is everyone looking at Europe? Or is everyone concerned about China’s heavy handed commitment to domestic partners? A recent request by China’s ore shippers to the mining giants to “re-visit” their construction issues may point to the real reason. Limited terminal space for inventory and a new logistics focus are now the critical factors in determining how ore or for that matter boxes are delivered to the end user.
Changing the Way We Think About … Manifestos
Paying it Forward
By Robert Kunkel
Japan has played an enormous role in modern shipping. Regardless of whether the reference is to shipbuilding and we recall the growth of IHI, Imabari, Mitsubishi and Kawasaki or to operators, like Sanko, NYK and Mitsui OSK, this small island nation has made an incalculable contribution to our industry.
Early last Thursday, an earthquake with a preliminary magnitude of 6.3 struck off the coast of Honshu. A day earlier, a 7.2-magnitude earthquake struck the same coast. On Friday, the most powerful earthquake to hit Japan in 100 years (measuring 9.0 on the Richter Scale) struck offshore, collapsing buildings, creating widespread fires and a tsunami with surging bulkheads of water up to 30 feet high. The damage and loss of life are sadly increasing every day. The greatest casualty of this event will be if those casualties are ignored and shipping does not respond to assist our friends in Japan, who by nature and custom are insular and tend to suffer in stoic silence.
Beyond Conventional Market Analysis
By Robert Kunkel
How the protests and regime changes in the Middle East will affect the near term or long term tanker market is difficult to predict. Our interest may be considered narrow, as the world debates the global impact of the Middle East unrest. However. shipping and oil has taken a very central role in the reports including a possible closure of the Suez Canal, the collapse of governments creating new logistic paths or trade routes and the sudden reduction of crude production. These are only a few examples of the downstream effects of the events developing in the region. And downstream does not mean you need to be within earshot of the gunfire.
The “Company Men”
By Robert Kunkel
Though many of us have experienced final scrap voyages to Alang as a result of age, overcapacity or falling freight markets, few have witnessed an actual newbuilding auctioned before the hull ever had a chance to taste saltwater. We had that opportunity last week in New Orleans and Alabama as the machinery, steel, partially completed modules and equipment for hulls 104 and 105 of the bankrupt American Heavy Lift virtual shipbuilding project were put on the blocks by liquidators Hilco Industrial and Myron Bowling Auctioneers.
Happy Year of the Rabbit
By Robert Kunkel
The world is still facing some dangerous times as we enter 2011: civil unrest in Egypt, war in Afghanistan, changes within the governments of Yemen and Jordan, continued recession in the United States, floods and cyclones in Australia. The list continues to grow and no doubt they have affected all the shipping markets. Dry bulk is waiting for a correction to Australia’s weather; Egypt’s turmoil has driven bunker prices well above 2008 levels and box operators are looking away from the U.S. consumer towards Europe for growth.
The Suez Canal – the Effects of Distance on Trade Is that all We Should Be Worried About?
By Robert Kunkel
“Canal Talk” has shifted from the expansion of Panama to the possible closing of the Suez. Earlier this week, the Suez Canal website suddenly disappeared from the internet, providing a shock to shipping. This despite the fact its disruption is most likely the result of President Mubarak’s crackdown on Internet service providers throughout the country. The networks are reporting protest scenes in Cairo but what has not been covered is a full-scale confrontation taking place in Suez dangerously close to the operation of the canal. Latest reports indicate the military has taken over the operation and shut down surrounding terminal operations. How those operations are progressing and what services are being affected is difficult to determine as disruptions in communications throughout Egypt is delaying the information flow. It is clear the internet disruption is extensive. While the www.egypt.gov website is down, the Suez Canal is still open and most likely will remain that way as long as it is under military protection.
The Need for Speed?
By Robert Kunkel
Having recently returned from a tanker construction project in Alabama, where NASCAR is all the rage, and listening to the industry rhetoric concerning “slow steaming”, I wondered what NASCAR racing would be like if the sponsors and team owners decided to reduce race speeds due to environmental concerns. Knock down the blurring 150 mile per hour whirlwinds to say 30 or 40 miles an hour to reduce fuel consumption and emissions. The corporate sponsors could claim environmental sustainability in NASCAR racing and Budweiser could take on a public relations safety initiative supporting the new crawl around the race track. Look at the proposal, as if the Daytona 500 took place under one constant yellow flag. It could happen. As NASCAR continues to be extremely profitable and more owners look to place additional cars on the track, the circuit will be dealing with the same problem shipping is facing in 2011 – Over-Capacity. Slowing everything down seems to be the answer to that issue.
It’s the Old “Squeeze Play”
By Robert Kunkel
In baseball a well-placed bunt with a runner on third creates what is called a “squeeze play”. To be successful, it must be planned and executed with the bunt laid down at the right moment and runners timing their rush to home plate perfectly. Played poorly, the “squeeze” ends up with the runner trapped between the catcher and third basemen with nowhere to run.
The dry bulk sector seems to be picking up the game of baseball. No one is hitting home runs at this point, but the first half of 2010 showed some improvement on the back of China’s continued demand. In the second half of 2010, the news was a bit more guarded. The start of 2011 does not look rosy with the Baltic Dry Index (BDI) falling to a new two-year low, Capesize rates are moving downward and the smaller size ships are drifitng away from the Far East, looking for activity in the Atlantic. At this point, it’s not fair to lump the dry sector into a single market analysis, as the BDI does. With Capesize dropping, Panamax moving sideways, Supramax falling steadily and Handys holding their own, a single BDI measurement does not address the actual complexity of the market. Dry bulk needs a new game plan.
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