Tomorrow’s Megaships: The Solution or the Problem?

The number of megaships in use is increasing. That raises the question whether that’s a good thing or not.

Today’s megaships are behemoths, and they’re growing in size. They top out at almost 24,000 Twenty-foot Equivalent Units (TEUs). Can you imagine what size future ultra-large vessels will reach?

The trend suggests the building of fewer but larger ships to meet tomorrow’s needs.

To help make sense of the trend in building megaships, let’s look at the advantages and disadvantages.

The Advantages.  The advantages are few, but they’re strong and they’re tangible. They address the maximization of financial value and the boosting of shipping performance. Price and performance are driving the demand for megaships. They remain the underlying reasons for building megaships.

  • Reduces shipping costs. This incentivizes the pivot to building larger cargo ships considerably. Because megaships have more capacity per vessel, that requires fewer ships and fewer trips. Economies of scale kick in, resulting in reduced costs. On the surface, this makes shipping via megaships an attractive option
  • Transports more goods in less time. The top 10 largest vessels range from 20,124 to 23,964 TEU. Notice, the Ever Given, which blocked the Suez Canal, is not on the list. That should help put things in perspective. Also, by shipping more containers on a mega vessel, you can reduce the number of trips. That helps save shipping time and meet the demand for goods.

Again, we’ve identified only two advantages – but both offer outsize value.

 

The Disadvantages.  Contrary to the list above, you’ll find many drawbacks. They run the gamut from damage and loss to environmental compliance. With that let’s dive into the list.

  • Increases damage to containers and cargo. Bigger ships risk increased damage. How much? According to an Allianz Global Corporate & Specialty Marine insurance report, “A major incident involving a fully loaded ultra-large container ship will easily result in a $1bn to $2bn insurance claim. Losses from damaged cargo may negate the benefits of reduced shipping costs.
  • Increases frequency of losses of containers and cargo due to rough seas/rolling. Although losses from shipping accidents have declined, the frequency of container losses has increased. Since October 2020, through March 2021, seven major large vessel incidents have occurred. That’s barely a six-month period. Of those incidents, six resulted in container loss or damage from rough seas or rolling. With the number of incidents increasing, the odds aren’t favorable.
  • Puts crew safety at risk. Marine insurance analysts believe the building of larger ships will jeopardize crew safety. Safety becomes compromised during rolling or capsizing events. First, falling containers can cause physical harm and/or fatalities to the crew. Second, fires can result from damage to hazardous materials containers. This can put crews at risk of inhalation as well as burns. Megaships pose increased safety risks to crews.
  • Increases repair and recovery costs. Even though the trend for accidents is declining, repair and recovery costs are rising. Megaships are more advanced, so repairs to technology and systems is more costly. Also, the scale of damage incurred by megaships makes repairs more costly. Next, only a few shipyards have the capability to repair megaships. Lastly, if accidents occur far away from these shipyards, recovery costs will increase.
  • Negatively affects marine insurance rates. Costs related to megaship mishaps have yet to be fully documented. But as more and more megaships transport cargo, a better estimate of true costs will evolve. In looking at Ever Given’s costs, Allianz reported , the incident“…cost global trade between $6bn to $10bn as week…”. Note, the Suez Canal Authority fined the Evergreen Line $1 billion in damages. And costs are still mounting, as the Suez Canal Authority has yet to release the Ever Given. Expect insurance rates to reflect this sooner rather than later.
  • Increasing risk of groundings. The sheer size and scale of ships, increases the risks of future groundings. Megaships are cumbersome to pilot making navigation in tight canals challenging. Factor in the effects of high seas and adverse weather conditions and the risks multiply. Before reducing the risks megaships pose, countries must invest in infrastructure to support these ultra-large vessels.
  • Compliance with environmental laws and regulations. As you might expect, the regulation of megaships varies worldwide. That complicates the use of megaships for transporting cargo. Thus, overcoming environmental hurdles might be difficult to achieve. The Port of Hamburg, for example, ran into stiff opposition in dredging the Elbe. Although authorities approved dredging plans in 2012, and a Federal Administrative Court issued a favorable decision in 2017, dredging did not start until July 2019. Expect Green initiatives to chip away at the benefits of shipping with megaships.

 

The Future of Shipping

Whatever the future holds for megaships, you can bet global shipping will remain risky. And the cost of shipping with megaships will likely rise, as the true costs become clearer. Yet, the Ever Given incident may galvanize industry stakeholders in resolving megaships’ challenges.

That speaks well for the industry, as the challenges of current trends require an eye to the future. They demand a long-term undertaking. Thus, dealing with megaship’s challenges calls for a long-term commitment.

When it comes to staying on top of trends at American Global Logistics, we’re on it. We track trends so you don’t have to.

Just as important, we track trends so we can mitigate or eliminate any disadvantages. But we don’t stop there. We’re always looking at how to leverage trends for your competitive advantage.

We believe the best way to tackle long-term challenges is with long-term partnerships.

If you’re looking for guidance in navigating shipping’s future, contact us at American Global Logistics. Or, if you prefer, please call us at 1.404.480.4593. There’s no risk and no obligation.