Towards container vessels of 25,000 TEU?

Jiawei Ge, Mo Zhu, Mei Sha, Theo Notteboom, Wenming Shi and Xuefeng Wang are the authors of a paper entitled "Towards 25,000 TEU vessels? A comparative economic analysis of ultra-large containership sizes under different market and operational conditions". This study has recently been published (online first) in the academic journal Maritime Economics & Logistics. The introduction of ever-larger containerships is a much-discussed topic in academic and business circles. The largest containership size has evolved from about 5,500 TEU in 1995 to more than 23,000 TEU in 2019. The economic rationale for further scale increases in ship size is largely dependent on the current and future market conditions in the container shipping market, the adaptive capacity of ports and terminals (both economically and technologically) and, more recently, environmental requirements and considerations.

Based on data obtained from Cosco Shipping, this study evaluates under which economic, operational and environmental conditions and expectations, shipping companies are likely to push the ultra-large containership (ULCS) size from 18,000-20,000 TEU to 25,000 TEU. Differences in both annual container slot cost and more comprehensive cost–benefit measures such as net present value (NPV), internal rate of return (IRR) and return on investment (ROI) are assessed under different key market-based and operational conditions. Our findings show that a further scale increase to a 25,000 TEU ULCS still generates economies of scale. The 25,000 TEU option gives a slightly better NPV result that the other two ship options, while the annual unit cost advantage for the largest ship size is more pronounced. An improvement in markets (scenario II) leads to positive NPVs for all three size options, but the 25,000 TEU ULCS clearly shows the best results. An extensive sensitivity analysis, focused on eight parameters and factors, was presented to check the robustness of the results. Very low freight rates, i.e. even below the poor freight rates of 2016–2017, and low load factors would not be conducive to the economic viability of 25,000 TEU ships, compared to smaller ULCSs. Very low load factors make the 18,000 and 20,000 TEU units more competitive from an NPV perspective, while the balance tilts to the 25,000 TEU unit when higher load factors are achieved. The NPV results are also very sensitive to vessel speed. When super slow steaming is applied, the NPV values of the three ship sizes remain very similar However, the 25,000 TEU vessel can present more favourable NPV results than the other two ship sizes when a sailing speed above 17 knots would be adopted, which remains unlikely in the current market context. A fall in shipbuilding prices and bunker prices makes the 25,000 TEU ship slightly better off compared to the other two ship types. Tariff or price reductions in ports make the 25,000 TEU option the preferred one from a total NPV perspective, ceteris paribus. However, the 25,000 TEU unit remains the better option irrespective of possible changes in port time of the vessels considered.

This study complements and updates the findings of previous studies (which focused on much smaller ship sizes) and contributes to the ongoing academic and corporate discussion on drivers and impediments of scale increases in vessel size by explicitly incorporating time- and context-dependent factors affecting optimal ship size.

The full paper is available as 'Online First' on the Maritime Economics & Logistics website: https://link.springer.com/article/10.1057/s41278-019-00136-4

Full reference: Ge, J., Zho, M., Sha, M., Notteboom, T., Shi, W., Wang, X., 2019, Towards 25,000 TEU vessels? A comparative economic analysis of ultra-large containership sizes under different market and operational conditions, Maritime Economics & Logistics,  DOI 10.1057/s41278-019-00136-4

Article brought to you by CEMIL (Centre for Eurasian Maritime & Inland Logistics) @ Shanghai Maritime University, China and PortEconomics.eu