War Has Begun in Shipping Market
Friday, September 08, 2017 1 Comment 433 Views 0
Following that CMA-CGM ordered nine 22000-TEU ships from Chinese shipyards, information shows that MSC will order eleven 22000-TEU ships from South Korean shipyards. Sources indicate that MSC, apart from the orders, considers to lengthen some of its 14000-TEU ships to 17000-TEU ones.
Overall, it seems that a climax of applying extra large ships will take place from 2018 through 2019, but the problem of overcapacity will once again become an critical issue. Of course overcapacity has always been the focus of the shipping industry for years. Over the last year when the market has been recovering, people has got an opportunity to kick back for a while without being concerned about overcapacity.
On one hand, the industry regards these two big orders as the proof of market revival. On the other hand, as said, people are worried that they are going towards a new round of overcapacity. In 2018 and 2019, when newly built ships are delivered one after another, undoubtedly container shipping will be a battlefield where competition is increasingly intense. However, there will be less enterprises to participate in competition, while alliances will be larger, which results in an even more cruel war.
From the perspective of operation, during the fast recovery of the market but shipbuilding costs still staying at a low level, it would be a misstep that enterprises give up ordering new ships and thus lose the chance to establish cost advantages. As to the abovementioned 22000-TEU ships with a price of 140 million US dollars for each, the cost for one container’s shipping capacity on average is less than 6,500 dollars. It can be found that the world’s first 18000-TEU ship owned by Maersk was built in 2012 at a cost of 180 million dollars and the cost for one container’s shipping capacity is 10,000 dollars. COSCO ordered six 21000-TEU ships in 2015 and the cost for one container’s shipping capacity is 6,667 dollars.
In another respect, relatively fixed costs are paid for administration, capital, materials, workforce, technology and patents related to ship construction. Therefore, the assertion is supposed to make sense that current construction costs of extra large container ships remain at a level that makes history.
Market competition, in nature, is the competition of costs. Or holistically, it is cost competition of enterprises at the same level in terms of service quality. Consequently, under the premise of stable prices of ships, the market tends to see more large ship orders.
Regarding overcapacity which has been a concern for the industry, according to the principle of market competition, it can be deemed as a means of competition beyond being annoying market status. Since the outbreak of the global financial crisis, the industry has been supposed to have realized that overcapacity is a normalcy indicating a competitive market. A capacity balance is abnormal. Such a balance indicates a highly monopolized or hypothetical market.
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