Study: Megaships Not Good For Economies of Scale

container-ship
Photo: Creative Commons

A simulation study on the operational and financial impacts of ‘megaships’ with a carrying capacity of more than 18,000 TEU on lines, terminal operators, ports and other supply chain stakeholders by global shipping consultancy firm Drewry revealed that these mega vessels provide only modest savings for the overall supply chain.

The study found that the economies of scale – a key feature of the liner industry – may be running out as vessel size increases up to and beyond 18,000 TEU.

According to Drewry, bigger ships help carriers reduce voyage costs, but these savings will be offset by higher port and landside costs. The total system cost savings are small and declining.

“Since 2009, leading container shipping lines have engaged in a new-build ‘arms race’ with vessel sizes increasing at breakneck pace to drive down unit costs and improve profitability. This race-to-scale is set to continue with a further 53 megaships expected to enter service in 2016,” according to Drewry.

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.

Drewry expects that mega vessels set 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.

The study found that combined shipping line and port total system cost savings peak at only 5% of total network costs and economies of scale diminish as vessel sizes rise beyond 18,000 TEU.

“As more megaships enter service the industry is rapidly approaching a critical stage. 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 if further productivity improvements from the transport system are to be realized. Addressing the operational and cost effects at port facilities caused by the challenging load and discharge patterns of these larger ships requires a cross-industry effort,” Tim Power, managing director of Drewry, said in a statement.

“All stakeholders in the supply chain must recognize the need for dialogue and collaboration if the maritime transport system as a whole is to benefit. If these benefits cannot be delivered and economies of scale in this industry really are running out, the implications are profound.”