There are changing winds in the liner shipping industry. Or should we call it a perfect storm of low oil prices, low charter rates and falling demand in times when the market is trying to absorb an increasing number of ultra large container ship?  The economic advantage of large ships is quickly diminishing when the utilization rate goes down, and the disadvantage of smaller older ships with less efficient hulls and higher fuel consumption is less hurtful with oil prices below $50 per barrel. If we add low charter rates to the equation, this could lead to that a 6,000 or 8,000 TEU ship could be competitive to the mega ships, all costs included.

But the WSJ article is touching upon something that is even more important for the logistic chain; the total cost and time to transport goods from A to B. The ports’ investments in new larger cranes and terminals in order to be able to handle the large ships,  the congestion at the terminals, the environmental impact, and the necessity to build addition storage and distribution infrastructure in order to handle larger batches of cargo in shorter time has to be paid by someone. And are the clients better served by one weekly service with a 16,000 TEU vessel instead of two services per week with 8,000 TEU vessels? All in, the benefits of employing the larger ships are likely to be negative. We still have a long way to go before the hinterland infrastructure can absorb the cargo from the larger ships efficiently. New shuttle rail applications, barge services and wet and dry inland ports are going to be essential.

Is CMA-CGM’s decision the beginning of the end for ultra large container vessels? Probably not, CMA-CGM decision is more an indication of how quickly the shape of the shipping industry is changing as carriers scale back orders, realign operations and reset alliances to get their finances and freight rates in order.

Article:  Record-Breaking Container Ship Departs U.S. Shores For Good    http://on.wsj.com/1TOW0h8