In the run-up to the TOC Container Supply Chain conference at TOC Europe 2014, veteran maritime industry analyst Ben Hackett questions the basic economics behind mega-vessels.
London, 03.06.2014 - “As long as carriers are unwilling or unable to reduce their excessive capacity, make hay and negotiate low freight rates, as the day will come when the “penny finally drops” and we shall see scrapping as a means to improving freight rates rather than bigger ships.” That’s the advice to container shippers from veteran maritime industry analyst Ben Hackett in the run-up to the 39th TOC Europe show, 24-26 June, London. Mr Hackett takes part in TOC Container Supply Chain, one of four conferences running during the event.
With over 35 years’ experience in liner shipping, ports, economics, trade and transport planning, Mr Hackett certainly knows a thing or two about maritime supply chains. He is currently President of his own consulting firm, Hackett Associates and author of the monthly Global Port Tracker, monitoring container trade at major North European and North American ports. From this vantage point, he is sceptical whether the vaunted economies of scale derived from mega-ships will come to fruition in reality.
“The main benefit is the lower cost of slots on a round voyage. In principle this is highly commendable but in reality it is a means of admitting that freight rates cannot be increased sufficiently. If you cannot control pricing, then the only option is to reduce costs,” observes Mr. Hackett. “Economies of scale, however, raise other issues, such as the need to fill the very large ships in an industry that has a fairly high volatility of demand linked not only to holidays and production stoppages, but also to fickle consumer demand.”
What economies of scale do not address, he argues, is “the inability of liner shipping management to reduce their overall capacity.” Excess capacity is the root of the problem of excessively low freight rates, says Mr. Hackett, and “cost reduction can only go so far to alleviate this problem.” He adds: In fact, with newbuildings of 18,000 TEU, they create further excess capacity as the remainder of the fleet that is being replaced is too young to be scrapped in the eyes of their owners.”
Mr Hackett concludes: “We should not encourage the hedonistic drive to build ever larger ships. instead, shipping companies should be encouraged to finally come to grips with their past mistakes and quickly reduce the excess supply of ships to the point where there is a better match with demand.”
Ben Hackett appears in the debate Europe’s Regional Shipping Networks: Short Sea Shipping & the Future for Feeders on Wednesday 25 June at the TOC CSC Europe conference.
The full text of Mr. Hackett’s comments can be view at http://tocevents-europe.com/press-pr/106-advice-to-container-shippers-make-hay-while-the-sun-shines