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The recent incident to "mega" container vessel, Ever
Given in the Suez Canal highlighted the impact one break in
the supply chain can mean to global trade. The Ever
Given's 20,388 TEU (20-foot equivalent unit) capacity and
cargo remains anchored in the Canal at the aptly named Great Bitter
Lake. With insurers staring at a jaw-dropping $900m compensation
claim and shippers looking at slot availability amidst surging
freight rates, the aftermath may have consequences for both the
container and insurance industry that extend far beyond the 205m
width of this critical shipping route. This article looks at the
container fleet development, what it's meant for trade, notably the
relationship with the Suez Canal, and considers how long the
advance in size will continue and if 'big' will remain
beautiful.
Mega Containership Fleet Development
Regardless of the issues of perennial overcapacity and a wary
insurance community fearing the worst (those fears are now home to
roost), as IHS Markit's maritime portal figures show, the
punctuated leaps in vessel size and the growth of the container
fleet overall have been nothing short of remarkable.
To put this into perspective, in 2005 the container fleet in
total was under 2,000 vessels, the largest vessel capacity was
11,078 TEU with a Deadweight (dwt) value of 115,700 tonnes. By
close of 2020 it had rocketed to 5,234 vessels, with some boasting
a capacity of 23,964 TEU and 232,606 dwt. This has driven overall
Compound Annual Growth Rate (CAGR) by 42%, from 44K TEU in 2005 to
8.82 million TEU in 2020. Various factors have driven the growth
notably economies of scale vs transportation costs, a dominant Asia
Europe trade lane fuelling enough cargo, and fierce competition
amongst owners. All have played into the burgeoning desire for more
of what have become known as "mega" container ships.
As for the future, in the short-term there seems to be no
slowing of the TEU arms race. The first vessels set to breach
24,000 TEU are projected in 2022 and significant additions to the
fleet can be expected in 2023. Looking further forward to 2024 the
current orderbook suggests a levelling off, but whether this is
indicative of earlier phases of vessel development before the next
leap forward remains to be seen. Considerations around advances in
size vs cost benefit, viable infrastructure, plus factors like IMO
2020 regulation, are all playing into the decision-making process
now for owners too. The container fleet is estimated to be
responsible for 30% of shipping emissions but some owners are
taking measures with new mega vessel orders, for example Hapag
Lloyd's recent 24,000 TEU vessel orders boasting LNG / dual fuel
capability.
Vessel growth has meant dimensions have also expanded rapidly
since 2005 to accommodate capacity, but the correlation with rising
capacity vs length and breadth hasn't been a simple upward curve.
As analysis shows, the correlation started to level off at the
point vessels reached 18,000 TEU (in effect since the arrival of
Maersk's triple E class vessels in 2013). Taking the next step on
those dimensions may well have implications for larger vessel
orders. As for operational implications, considering the Ever
Given incident and Suez Canal accommodation, the Canal
authority requires vessels over 400m in length to receive
assistance, and Ever Given dimensions pushed that to the
limit with a length overall of 399.944m. By way of comparison the
largest container vessel currently in service by TEU is HMM Le
Havre, built in August 2020, and boasting a TEU capacity of
23,964, a dwt of 232,000, though "only" a length overall of
399.900m.
If we look at capacity and the impact on draught for example,
(maximum draught in metres to summer load line), as per figure 5
the minimum water depth for container vessels >10,000 TEU and
>100,000dwt is 14m. For vessels >20,000 TEU, notably the
aforementioned HMM Le Havre, this rises to 16.5m. Larger
vessels have naturally driven developments in port infrastructure
and handling facilities, notably to ensure deep-water container
port availability, plus investment in the required dredging in
estuaries and rivers. In addition, key waterways such as Suez (see
below), Malacca and Panama have all had to develop to accommodate
size demands.
Voyage areas of Very Large Mega
Containerships
There are distinct concentrations of ports able to handle
vessels at >10,000 TEU with draughts of 14m even considering
that the primary Asia Europe trade routes via Suez Canal. South and
East Asia, for example, are home to 40% of viable ports. This
handling capability distribution becomes more acute when looking at
vessels >20,000 TEU and >200,000 dwt with draughts of 16.5m
notably aligned with the Suez Canal enabling much shorter voyage
times vs alternative routes around the Cape. As a case in point,
due to the Ever Given incident one vessel that took the
Cape route thereby adding a week to the journey time, was sister
vessel Ever Greet.
Looking at data from the last six months, callings are
concentrated in China, USA, EU (all member states) and Singapore,
reflecting the largest economies and busiest routes in terms of
containerised trade globally.
At the port level, Singapore tops the list with 882 port calls
by vessels >10,000 TEU, followed by Shanghai (*incl. Yangshan)
and Ningbo. As expected, of the top 20 ports on the list, the
majority are situated along the Eurasia and Transpacific trade
routes. As data from IHS Markit Global Trade Atlas shows, as a
regional and even global trans-shipment hub, a large portion of
Singapore's export trade is due to re-exports owing to its
transport connectivity advantage.
The port call statistics are also clear if we look at a snapshot
of fleet positions as of May 31, 2021, both for containerships
>10,000 TEU and then >15,000 TEU. The density is obvious on
the Eurasia trade lane passing through Suez, notably considering
cost implications for alternative routes via The Cape.
The respective calling destinations reflect the trade deployment
driven by demand.
A typical 20,000 TEU vessel's voyage on Eurasia
route
To further understand the mutual benefit with vessel size and
trade we can follow the voyage of a typical ~20,000 TEU
containership. Taking a typical vessel voyage in 2021, a journey
from and to Poland starting in February took 85 days. For a
hypothetical weekly container service, that would mean 12 similar
size ships deployed to maintain the sailing schedule assuming no
delays.
Of note and considering the draughts above, no values registered
a 16m threshold. Few, if any, ports can handle vessels of this size
fully loaded and these averages suggests that vessel utilisation
was (and is) around 80 - 85%.
Mega vessels and Suez Canal accomodation
The Canal has done much to facilitate larger container vessels
(and vessels of all types) and of course containerised trade. In
2010 canal expansion increased draught capacity from 20m to 22m
(Canal figures state 66ft) so that even accounting for tidal ranges
of 1.9m in the South, it was able to accommodate 100% of container
vessels. Eleven years later that's still the case. Whilst the 2010
expansion also increased dwt limits from 210,000dwt to 240,000dwt,
since 2010 dwt values have rapidly caught up with canal
accommodation. Assessing the 2022 orderbook in particular two
vessels under construction, Shanghai Jianghai
ChangxingH1858A andJiangnan H2630, are
noteworthy as they have a reported 241,000 dwt, in effect beyond
the canal's stated capacity.
Since the 2010 expansion overall cargo volumes transiting the
canal have risen steadily from 692 million tonnes to 1,031 million
tonnes. Containerised cargo volumes have accounted for much of that
growth as shown below in figure 12. Marked gains from 2017 align
with the arrival of the mega vessels >20,000TEU and
containerised cargo alone accounted for 49% of total volume by
2019.
Whilst cargo volume and the vessels have got larger conversely
the total number of container vessels using the Canal has dropped
significantly. According to canal statistics container vessels have
dropped from a 40% volume share by type in 2011 to 28% in 2019.
That share has mainly been taken by tankers (19% in 2011 rising to
27% in 2019) and bulk carriers (14.5% in 2011 rising to 22% in
2019).
The relation with mega vessels shows no signs of slowing though,
quite the reverse. The first mega container vessel >20,000 TEU
to transit Suez (northbound) in May 2017 was MOL Triumph,
a suitable name. A moot point perhaps but Ever Given first
transited the canal in October 2018 and completed 21 transits up to
the incident. Since 2017, the volume of vessel transits and port
calls have risen quickly and whilst the overall volume for
container vessels has declined, even factoring in COVID-19,
transits N and S in 2020 were up 22% on 2019 for this size
class.
As for 2021, normalising data and projecting forward that will
go well past 300 transits N (and close S). To date 82 of the 85
largest container vessels in service have used the canal, a
combined TEU capacity of 1.7m accounting for 7.2% of total TEU.
Risk reward
The Ever Given wasn't the first mega vessel to ground
in the canal. The dubious honour of the first "mega grounding" goes
to vessel OOCL Japan, 21,413 TEU and dwt 191,640, October
2017, just months after MOL Triumph's transit.
Fortunately, this was a non-serious incident and IHS Markit
recorded that the vessel was quickly refloated within 2 hours with
tug assistance and continued its voyage. One can only speculate
what the fall out would have been four years ago if the vessel had
suffered a similar fate to Ever Given, though the
insurance industry had been considering possible $1bn losses
involving mega vessels as far back as 2015 (see Allianz -
Safety and Shipping Review, March 2015).
Since 1978 IHS Markit casualty records show a very low number of
total incidents to container vessels in the canal, 22 in total. By
comparison the two other primary cargo types, bulk carriers and
tankers, have recorded 147 incidents in total.
Looking at the reports for the periods pre and post 2010 Canal
expansion, pre 2010 there were only 7 recorded container vessel
incidents, four of them involved in a "stranding" (i.e. grounding
or machinery damage requiring refloating or towage assistance).
Comparing again to bulk carriers and tankers, between 1978 and
2010, IHS Markit recorded 121 canal incidents in total, of which 28
involved strandings, all non-serious. Post-2010, whilst there have
been far fewer incidents, only 26 recorded, of the six which have
involved strandings, three have been serious
incidents.
Post 2010 expansion there have been a total of 15 recorded
container vessel incidents, 12 of which were strandings with 11
recorded since 2017 (i.e. since the arrival of vessels >20,000
TEU), and of those 7 incidents were deemed serious, including of
course Ever Given. Black swan event or whatever the label
of choice, this particular incident has certainly highlighted the
simple fact that with dwt and dimension values now approaching
maximum canal accommodation, the margins for error, human or
mechanical, are getting smaller and smaller.
Mega Vessels - Maritime and Trade Outlook
Will big remain beautiful? The answer is highly likely, at least
in the short-term. Assessing demand, according to latest IHS Markit
Global Trade Atlas Forecasts, estimated seaborne containerised
trade (TEU volume) indicates that global container trade could
reach 174 million TEU in 2025, and 232 million TEU by 2035. Whilst
these forecasts should be treated with caution, especially in a
VUCA environment, what is clear is that the mega vessels are being
built to facilitate any rise in demand. Looking at the top
exporters and importers, trade between Asia, Europe and The United
States will lead that demand, so associate port handling and
performance capability will also be key.
Finally, considering the orderbook and fleet development,
analysis shows the average period of new building to delivery is
three years for any vessel >10,000 TEU and slightly longer at
14,000 TEU. Considering demand decision making now, cost benefit
and, Ever Given aside, relatively low operational risk,
the mega vessels are still hugely attractive.
What the orderbook will yield post-2024 and whether steps will
be taken to drive the next leap forward in vessel size continues to
be closely monitored.
