December 06, 2013


The following editorial was published somewhere last month, in the beginning of November. Anyway.

The end-October agreement between China’s State owned Shandong Shipping and Vale means, effectively, that the giant Valemax bulkers will be allowed to re-enter Chinese ports soon. But more importantly, the deal shows that whether we like it or not, bigger ships- much bigger ships- are the future of the industry.

Under the agreement, Shandong will operate four of the 400,000 tonne vessels for the Brazilian company, paving the way for these vessels to ship ore to the eleven ports in China that can accommodate Valemaxes. The deal with also allow Vale to cut its transportation costs by a third. 

Leaving aside the short-term questions that come to mind (What will this do to the bulker transhipment market in South East Asia and beyond? Are the four Valemaxes to be manned completely by Chinese crew? Is this, in reality, a form of disponent ownership?), the major takeaway of the agreement between China and Vale is this: In future, local or regional opposition to giant ships will eventually crumble in the face of the economies of scale that these offer. The financial numbers are just too compelling.

I think that the coming years are going to see a big shakedown in the markets- particularly in the bulk and container segments. The present economic climate aside, ship owners will find themselves between a rock and a hard place with each passing year. Ballooning regulatory and environment-related costs, increasing operational costs and a dearth of quality officers will continue to squeeze the industry. Freight rate uncertainty and changing trade patterns- thanks to shale and trade becoming more ‘East-heavy’- will require greater nimbleness of mind and foot both. 

Big companies with deeper pockets or access to finance are already switching to bigger and bigger ships, Maersk and Vale amongst them. Others who can afford big ticket purchases are following. The smaller ship owner is likely to see increasing pressure on survival because of this.

Bit what concerns me most is that the industry- barring the shipyards that can build those ships and the owners that can pay for them- is not geared for the giant ships of the future. Classification societies and regulators are not- they still operate in a regulate-after-disaster foggy mindset. Insurance companies still struggle to put a commercial and environmental price on the chance of one of the sailing behemoths going down in a busy shipping lane or in an ecologically sensitive area. Shipmanagers remain clueless as to where the next generation of seamen will come from; they are struggling to find competent officers to man the ships of today. 

Shipping is simply not ready for tomorrow. The crazy thing is that it does not even realise this.
The future will be here sooner than we think. Focusing only on economies of scale and largely ignoring how we are going to get there- and how we will do what we have to do when we do get there- is just plain stupid. Because, in this sea of uncertainty, only one thing is certain: that the bigger the ships of the future, the harder they will fall. When that happens, our economies of scale will not extend to disasters- commercial or ecological. Those will be off the scale.


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