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FACULTY OF BUSINESS MANAGEMENTBACHELOR OF BUSINESS ADMINISTRATION (HONS.) TRANSPORTINDIVIDUAL ARTICLE REVIEWCOURSE NAME TRANSPORT POLICY AND PLANNINGCOURSE CODE TPTTITTLE MEGA-SHIPS: IS BIGGER ALWAYS BETTER?GROUP BA2475CPREPARED BY MUHAMMAD HAFIZI BIN ABDUL AZIZSTUDENT ID 2018400356PREPARED FOR MADA...

Description

FACULTY OF BUSINESS MANAGEMENT BACHELOR OF BUSINESS ADMINISTRATION (HONS.) TRANSPORT INDIVIDUAL ARTICLE REVIEW

COURSE NAME

TRANSPORT POLICY AND PLANNING

COURSE CODE

TPT632

TITTLE

MEGA-SHIPS: IS BIGGER ALWAYS BETTER?

GROUP

BA2475C

PREPARED BY

MUHAMMAD HAFIZI BIN ABDUL AZIZ

STUDENT ID

2018400356

PREPARED FOR

MADAM AZLIN ABDUL LATIF

SUBMISSION DATE

30TH APRIL 2020

INTRODUCTION Due to the rise in demand for containerized cargo delivery, the container shipping industry has seen a rapid growth over the last three decades. There was a report stated that more than 90%

of the world's trade goods are transported in containers. Since containerization was adopted, ship capacity has steadily increased with the increasing that reached almost eightfold in the last 40 years and yet doubling the amount since the year of 2000. Mega ships are often defined as ships with a capacity greater than 10,000 TEUs although there are no global standards, container vessels can be categorized based on their dimensions and ability to carry loads. On the other hand, the Panama Canal serves as a benchmark for the classification of container vessels which then leaves the term post-Panamax ships for vessels that are with capacities of 5,000-10,000 TEU. Thus, mega ships are considered as ultra-large post-Panamax ships that can carry over 20,000 TEU and also have a draft of over 15 meters. In addition, OOCL Hong Kong is currently the world's largest mega ship with the capabilities of carrying 21,413 TEU it measures about 399.87 meters in length and 58.8 meters in width. These mega ships are often referred to as being primarily deployed on the Far East- North Europe trade lane, not just because it is a decent cargo route, but also because it covers the longest nautical distance. The trend towards growth in mega container ships moving along with weak earnings from associated shipping lines. Therefore, it has resulted into the creation of strategic alliances between carriers, which spread the risk associated with new investments and better utilization of existing capacity. Then three significant alliances were established and have begun to operate since April 2017. Those three alliances are The Alliance, 2M and last but not least Ocean Alliance.

SUMMARY

As stated in the article, usage of mega ships need some consideration on certain perspectives for instances the route, nautical distance and volume which must be crucial. This is because a ship either makes more money or can save on operational costs only when it is sailing and also when port time is reduced. Despite for contributing benefits toward the logistics industry, mega ships on the other hand also leaves back some consequences. To begin with pressure to fill up the mega ship in order to reach maximum utilization of the slots on the vessel. One the main factors that will influence on ocean freight rates is all about the capacity against utilization. As we noticed that mega ships have the ability and a lot of capacity to transport so many containers at one time, therefore the utilization rate will slump due to the pressure of maximize the slots on the vessel. By looking at the illustration below from Container Transport International, 2015, it shows that there are decreased in quay utilization rate for about 16% when managing with mega container vessels which the size are more than 10,000 TEU.

Furthermore, mega ships emerging because of the basis of a container shipping industry that have to achieve optimum economies of scale and cost savings to overcome the declining freight markets. Meanwhile, double in size of the container vessel, helped in reducing the total costs per container transported. The decision by one shipping line to increase the size of a ship leads to a surge of similar decisions by competing shipping lines. As a result to not to left behind by the others and gaining the same economies of scales which it is stated that the container shipping market is driven primarily by price competition.

DEBATE ON THE ARTICLE

From the article, there is no doubt that the pressure could be felt in order to fully utilize the mega ships’ slots. There was a report stated, whereby a mega ship of 18,000 TEU would need at least 91% of the vessel be filled with containers in order to achieve cost savings. In addition, mega ship development and the related container fleet capacity growth has taken place despite slow growth of world containerized trade. Besides that, the challenges to fill mega ships are interrelated with lack of port facilities issue. This is because in the port there is lack of crane ability which previously to increase loading or unloading productivity of a container vessel. It is not difficult to rise the loading speed by adding one or two gantry cranes however nowadays, crane can no longer be added due to the width of the mega ships. At the same time, discussing about port there’s other issue about port problems with mega ships. Of course it is regarding the limited berth size for the mega ships. Because the big ships are also less flexible in port area, they have limited choice to come along side berth with their side, so it may result in longer time stay in port and also will negatively affect economies of scale. Besides, it has limit ports that vessel can call. Hubs and spoke system are the choice of those ships and it surely leads to the feeder and transshipment costs for ship owner. Maritime access can be a challenge for many ports that are not that deep, such as estuary ports and river ports. Mega ships in need for larger dredging either rivers or access channels leading into the ports. To be added the maintenance of dredging activity in order to keep passages at the same depth will requires more intense dredging. Unfortunately, dredging cannot be done without considering with other important perspectives. This is because dredging one of the sensitive issue in many places. It can provoke substantial local opposition which it is related to perceived damage to the environment and ecosystems. Moreover, less developed hinterland facilities are one of problems for mega container ships in port. Hinterland is the area of land behind or around coast, it has various types of facilities related to operate container including container yard, warehouse, and road for land transportation. Therefore, hinterland influences to the container operation directly. If these facilities cannot adapt with the growth of mega container ships, it will make the port congestion problem more serious. For the shipping, reliability is very important, and port congestion is one of factors which make the ship line become unreliable.

On the other hand, it is also may be charged on costs either unintended cost or maybe hidden cost. The incurred cost are related to warehouse operations and logistics during at the

destination port whereby the tremendous amount of containers that come with mega ships. With more containers arrived at the same time, meaning that trucking services at each destination have to be effectively efficient and also having a regular flow with diverse amounts. More container ships being unloaded at the same time create further issues as they are being transported and stored. For instance, when the warehouses cannot store a large number of items therefore additional costs such as demurrage or per diem would be incurred. Furthermore, operating these mega ships is costly. There are lack of rescue equipment and technologies that are really capable of removing a wreck of this ultra-huge scale of vessels. Thus, costs of saving hulls of the mega container vessels in the event of an accident will increase. At the same time, there are also very few shipyards that are likely capable of repairing these mega ships, which would cause significant problems in the event of an accident. Insurance companies are being extremely careful when defining their contracts for mega carriers and international ship building regulations are toughening to avoid accident risks. Since such events are fortunately unprecedented so far it is hard to anticipate their consequences for the insurance market. That means the costs for insurance of these scenarios cannot even be specified precisely and in the end the shipping company alone have to be responsible for their losses.

RECOMMENDATION

There is probably a little doubt regarding the mega container ships that have joined the global fleet in recent years. It is to be expected on more delivery will occur in the years to come, which have a significant and increased pressure on the transport network. Pressure felt are not only on ports but including others such as terminals and hinterland, which will be forced to handle many more containers. Therefore, there should be efforts taken into this issue in order to achieve solutions towards the problem. First and foremost, stimulate an appropriate forum for discussion between liners and transport stakeholders. Container lines have typically not consulted anyone on new mega-ships, before they ordered these. A constructive discussion would need to take place with the relevant transport stakeholders, including governments, regulators, port authorities and all interested constituents. The objective could be to facilitate an exchange of views, an understanding of objectives and plans, and ultimately better coordination to ensure optimum supply chain configurations, including optimized use of mega-ships. Besides that, implementation of vertical integration. Vertical integration could be used to increase the alignment of incentives between carriers and ports, with carriers investing in some mega terminals. Those investment enables shipping companies to reduce physical bottlenecks at ports, control stevedoring costs and potentially improve the quality of their services. On the other hand, vertical integration will lead to its potential costs that need to be evaluated against its potential benefits.

REFERENCES

1) Berglund, P. (n.d.). Mega-Ships: Is Bigger Always Better? https://www.xeneta.com/blog/mega-ships 2) Are Mega Ships Really Better? (2019, August 30) https://www.morethanshipping.com/are-mega-ships-really-better/ 3) The Advantages and Disadvantages of Ultra-Large Container Ships. (2018, October 24). https://www.morethanshipping.com/advantages-disadvantages-ultra-large-containerships/ 4) Gr&o, K., & Raun, N. (2015, June 2). These are the OECD's recommendations for mega-ships. https://shippingwatch.com/carriers/Container/article7754782.ece...