Container shipping on its way to the next level?

Senior engineer Xu Lirong thinks big. The chairman of the board of the Chinese state-owned shipping company Cosco once again wants to venture into new dimensions. He is having the feasibility of a 25,000 TEU vessel tested – and he will probably have it built in China, too. This is probably possible in technical terms, but it’s quite risky in economic terms. The global shipping industry is in a state of alarm. The French carrier CMA CGM plans to put new 23,000 TEU vessels to sea this year. So it actually seemed like an economically sensible limit had been reached – and that it would last for many years.

At present, the largest containership in the world is the “OOCL Hong Kong”, which can transport 21,413 steel boxes. The 400-metre ship is four times as long as a football field, as wide as a twelve-lane highway (59 metres), and as high as a respectable skyscraper (73 metres). The new Chinese ship is supposed to be about 435 metres long and 60 metres wide as well as to have a draught of 17 metres.

Xu Lirong, a member and strong supporter of the Communist Party, signed on at Cosco when he was only 17 years old. As a young man in the early 1980s, he witnessed the opening of the Chinese economy. And its historic rise has been driven by the export of Chinese goods. And it has made Cosco great, too.

In China, people seem to be firmly convinced that shipping companies will continue to pursue economies of scale for some time to come. “This is necessary in order to establish global networks and improve our own competitiveness,” Cosco top manager Zhang Wei confidently explains. The massive ships currently being planned will supposedly be more economical. Whereas a small, 1,000-container ship needs a crew of 15, a ship that can carry almost 20 times as many containers often only needs a crew that isn’t even twice as big. In addition, fuel consumption per container is reduced. Large ships are also more environmentally friendly because they emit less particulate matter and CO2.

However, these arguments haven’t completely convinced Richard von Berlepsch, the man in charge of Hapag-Lloyd's fleet, that even bigger would be even better. In fact, he is rather cautious about this. “We’re investing in new ships with a 25-year horizon,” he notes, adding that it is currently highly uncertain what the world of seafaring will look like in 25 years’ time in both economical and environmental terms. Most ports in the world won’t be able to handle ships of such giant sizes due to the depth and length of their quay walls, he continues, so the global maritime infrastructure would have to be modernised and expanded in any case. And that would cost a lot of money. At present, ships with capacities of up to 25,000 TEU could only be deployed on the Far East – Europe trade. Nevertheless, it would probably take longer to handle the large ships, von Berlepsch adds, noting that: “The bigger the ships, the longer they stay in the ports and don’t earn any money.” Thus, the cost advantages brought about by sheer size could quickly evaporate. In fact, many experts say that these advantages are not nearly as great going up to 40,000 TEU than they were with the jump from 10,000 to 20,000 TEU.

What’s more, many ports wouldn’t be able to handle such ships simply because of their geographical location. Fully loaded, the draught of the ships would be too great. However, operators of terminals located right on the open sea, such as Eurogate, are already offering themselves to the Chinese as future partners, such as with the deep-sea port of Wilhelmshaven in north-western Germany.

However, many freight forwarders are sceptical because they fear that they will have to build big warehouses if the mega-ships unload 25,000 boxes in one fell swoop. And most of Cosco’s competitors are playing down the idea. For example, Tobias König, Managing Director of Hamburg-based Lexington Maritime, says that shipowners “will need workhouses in the future” that can transport about 10,000 TEU as well as between 16,000 and 20,000 TEU. “I don’t think the trend towards ever larger ships will continue,” he adds.

Furthermore, in this debate about size, many others in the industry point to the parallels with one of the biggest debacles in the history of the aviation industry. The Airbus A380, which can hold up to 500 seats, has mainly been flying on long-haul routes since 2005. But, for a long time, many airlines had difficulties filling the giant aircraft at reasonable prices.

Nevertheless, consultants with McKinsey are still convinced that the penchant for size of the Chinese could prevail and shake up the entire industry. They expect that massive container ships transporting some 50,000 boxes will be sailing on the world’s oceans in just a few decades. However, for such giant ships to operate profitably, global trade would first have to increase fivefold. Last year, 168 million TEU were transported. If this volume were really to quintuple by 2060, the maritime infrastructure worldwide would have to be continuously modernised and expanded. And shipowners would also have to radically restructure their business models. The fact is that new overcapacities would inevitably arise if all the big shipowners were to join the race for mega-ships. And then everyone would lose – again.