Container Carrier MSC Orders Five Giant Box Ships for $762 Million
Date: Tuesday, October 15, 2019
Source: The Wall Street Journal
The order by the world’s No. 2 container shipping line comes as global trade growth is faltering and freight rates are tumbling
Mediterranean Shipping Co. will buy five giant container ships from South Korean yard Daewoo Shipbuilding & Marine Engineering Co. for $762 million in a new sign that ocean cargo carriers are building up their capacity despite falling freight rates and weak trade growth.
DSME announced the order Monday without naming the buyer. Two people familiar with the matter said Geneva-based MSC, the world’s second-largest container shipping carrier by capacity, exercised an option to buy the vessels as part of a previous order.
The ships likely will be deployed on the Asia-to-Europe trade lane and will be able to move 23,000 containers each. The route is the world’s busiest ocean container lane and carriers including MSC, A.P. Moller-Maersk A/S and China’s Cosco Shipping Holdings Ltd. use their biggest vessels there, but faltering global trade has left the operators competing more aggressively on pricing.
The Shanghai Containerized Freight Index shows freight rates from Asia to Europe at $581 per box this week, the lowest in three years. Trans-Pacific rates, which have been highly volatile on the back of the U.S.-China trade tariffs, were at $2,335 per container, the lowest this year.
“Container volumes from Asia to Europe rose 4.6% on year from January to August while the fleet of new very large container ships [vessels that move more than 10,000 boxes] has grown 12%,” said Jonathan Roach, an analyst at Braemar ACM Shipbroking. “With a weak European economic backdrop, combined with a very large container ship fleet expansion program, freight rate deflation has become difficult to avoid.”
Taiwan’s Evergreen Marine Corp. last week ordered six ships of the same capacity as the MSC vessels from Samsung Heavy Industries Co., another Korean yard, for around $920 million. France’s CMA CGM SA, the world’s fourth-largest shipping line, in August took delivery of the first of nine 23,000-box vessels it has ordered.
Container ships move the vast majority of international trade of manufactured goods like cars, furniture, home appliances, food, clothing and electronics.
Trade disputes between the U.S., China and Europe have put the brakes on global economic growth, and the International Monetary Fund projects the world economy in 2019 is on course for its weakest year of growth since the financial crisis.
Carriers say the giant box ships, which are 400 meters long (1,312 feet) or about as high as the Empire State Building if turned upright, provide critical operating economies. When the ships are full, their fuel consumption per container is a quarter that of smaller vessels.
“The key is to sail full,” said the chief executive of an Asian operator, asking not to be named. “These days, with the global slowdown and the trade tensions, that’s not the case and we are losing a lot of money.”