[170316.EN.BIZ] Mega Ships' Economies Of Scale 'Tell A Tale Of Diminishing Returns'

A DREWRY simulation study of the impact of mega ships on lines, terminal operators, ports and other supply chain stakeholders shows they will not deliver hoped-for cost benefits.

"As more megaships enter service the industry is rapidly approaching a critical stage," said Drewry managing director Tim Power.

"To ensure the economics of vessel upsizing continue to benefit the entire supply chain, lines and ports need to work in a more coordinated manner," he said.

The study suggests that the economies of scale, that have been a key feature of the liner industry, may be running out as ships get bigger than 18,000 TEU.

Since 2009, leading to an "arms race" with vessel sizes increasing at breakneck pace to drive down unit costs and improve profitability, say analysts at the London research house.

This race-to-scale is set to continue with a further 53 megaships expected to enter service in 2016.

While bigger ships help carriers reduce voyage costs, these savings are increasingly offset by higher port and landside charges meaning that total system cost savings are small and declining, said the Drewry Maritime Research report.

Larger vessels place greater demands on ports, where channels have to cater for deeper draughts and on terminals, which need to upgrade equipment, yard facilities and manning levels to effectively handle increased peak cargo volumes.

On a total "system cost" basis the study found that the upsizing of vessels provides only modest savings for the overall supply chain with efficiency gains being further eroded as vessels size increases beyond 18,000 TEU.

Drewry expects that even with no further increase in maximum vessel size, the sheer number of mega ships expected to be delivered in 2016 will strain terminal resources, as the average size of ships increase the amount of cargo that has to be handled at times of peak container activity.

Said Mr Power: "If these benefits cannot be delivered and economies of scale in this industry really are running out, the implications are profound.

"If economies of scale have run their course, future vessel ordering will be based on assessments of future demand growth.

"When this happens, the tendency to structural overcapacity that has plagued the industry will be much reduced," Mr Power said.

Source : HKSG.