Insight into the world of shipping, with a large shipping company delinquent in payments on charters to its shipowners. It’s risky to own ships today, with rates so low and volatile.
In an e-mailed response to The Loadstar today, Hanjin Shipping would not be drawn on the renewed suggestions from a South Korean government official of a merger with Hyundai Merchant Marine (HMM), merely offering a “no comment”.
Source: Hanjin charter cut negotiations hobbled by hire arrears
Jose Carlos Nunes on LinkedIn Pulse has posted this interesting piece. Container rates are going lower than anyone expected, and still more huge ships are being built. He raises the question whether there is an upper limit, say 24000 TEU. Perhaps shipowners should quit building them.
I’m wondering if the major carrier alliances have created an oligopoly out of what used to be perfect competition. If that’s the case, shipowners ought to be planning capacity taking into account others’ strategic reactions to what they do. A Cournot oligopoly is ideal for modeling capital intensive capacity decisions. The observed behavior is currently not that of an oligopoly, but in repeated Cournot games we get convergence to the Cournot equilibrium distribution of capacities rather soon, say for instance in a 30 person managerial economics class in a single class period or less.
So maybe waiting is in order. Ocean shipping executives are clearly smarter than economics students. Maybe they know something we don’t.
I’m wondering if a real options argument does not apply also. If you don’t build, you are out of the game, since the big ones are so efficient they push the cost down so dramatically. Building is a hedge against the possibility the equilibrium may be far higher than 24000 TEU. The option cost is simply the ship cost, not small, but small in comparison with losing the business completely.
According to a recent research by Drewry Maritime Advisors, last year witnessed a record intake of new ships in the container shipping industry. World Maritime News mentions “there were 209 new ships
Source: Container Shipping 2016 Outlook | Freight Rates Beating “Unbeatable” Record Lows | Jose Carlos Nunes | LinkedIn
Of course all this ignores the ports and the question of whether they can keep up in terms of handling the bigger ships. Clearly the number of ports accessible will decline, unless we figure out how to float a boat with less draft, and we will have a hub and spoke port network with transloading rather than direct service. Just like the airlines.
Posted in Managerial Econ, Shipping, Strategy, Supply Chains, Uncategorized
Tagged alliances, big ships, innovation, Logistics, ports, Shipping, ships
The ship design will be pre-approved by Lloyds Register. GE, Hyundai Heavy Industries in Korea, and Lloyd’s Registry plan to build this container ship.
I’m also interested in the facilities for container handling. It seems like a lot could be done there with innovative designs.
With LNG fuelled gas turbines and electric motors, the design will be a clean powered ship with maximum efficiency and operational speed flexibility. Project further develops HHI and LR’s work on maximised and safe container loading and continues GE’s collaboration with LR on the COGES (COmbined Gas turbine, Electric and Steam) propulsion and power system technology.
Source: GE, HHI and LR sign project to develop gas turbine powered, electrically driven, 14K container ship design | Lloyd’s Register