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China Cosco to Order at Least 10 Triple-E Megaships

Shipping and port giant China Cosco Holdings Co. is set to order at least 10 container megaships, joining an array of competitors in their quest to dominate the world’s busiest ocean trade routes, people with direct knowledge of the matter said.

The so-called Triple-E vessels, which can move 19,000 containers each, will be ordered from a Chinese yard and will cost around $1.4 billion in total.

“Cosco is in the final process of choosing among five Chinese yards and we may get the firm order by the end of May,” one of the people said. “The ships will be deployed in the Asia-to-Europe trade loop.”

A second person said Cosco had so far been reluctant to follow bigger competitors—including the Maersk Line unit of Denmark’s A.P. Møller-Mærsk A/S, and Swiss-based Mediterranean Shipping Co.—that already have a number of such behemoths in their fleet.

“They had and still have concerns on whether they will be able to fill them,” that person said. “But megaships are imperative if you are to compete going forward.”

Fully loaded, Triple-E’s cut the cost of moving a container across the oceans by around 25%, and industry executives say smaller operators that can’t afford to buy them will increasingly lose market share on the biggest trade routes.

Container shipping, which carries about 95% of the world’s manufactured goods, has suffered over the past decade from overcapacity that has led to falling freight rates, which major operators have described as unsustainable.

“Cosco is part of one of the world’s biggest shipping alliances,” said Lars Jensen, chief executive of Copenhagen-based SeaIntel Maritime Analysis. “If this alliance is to build its network and stay in the game against other, bigger groupings, then there is no choice but to run this kind of vessel.”

Cosco is the lead member of the CKYHE alliance, which also includes Taiwan’s Evergreen Line and Yang Ming Marine Transport Corp., Japan’s Kawasaki Kisen Kaisha Ltd. and South Korea’s Hanjin Shipping Co. In January, Evergreen ordered 11 Triple-E ships.

CKYHE competes heads on with the 2M alliance of Maersk Line and MSC, the world’s biggest in terms of capacity, and the Ocean Three alliance, the second-biggest grouping, comprising France’s CMA CGM SA, China Shipping Container Lines Co. and Middle East shipping major United Arab Shipping Co.

Maersk Line chief executive Søren Skou recently told The Wall Street Journal that the operator would order 11 new Triple-E’s this year in addition to the 18 it already owns.

“Everyone is joining the order frenzy, which means overcapacity, at least in the short term, will become an even bigger problem,” Mr. Jensen said. “Freight rates will remain depressed and volatile until smaller operators move out of the Europe-Asia route, and this will take some time.”

The cost of moving a container from China to Northern Europe fell last week by $75 to $511. That is about half what it cost at the beginning of the year and the lowest point since mid-2013. Analysts estimate that capacity in container shipping is at least 15% above demand.
Source: Wall Street Journal

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