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Too Big To Sail? Container Ship Cost-Cutting Creates Potential Of "Nightmare" Catastrophe

Tyler Durden's picture




 

We remarked on the first notable casualty of the collapse of global trade and with it the cost of shipping freight last week when the first of the bulk shipping bankruptcies occurred, but as The South China Morning Post reports, over the past 10 years, shipping lines have endlessly invested in newer, larger vessels - flooding the market with additional capacity - yet the industry's profitability and return on capital have remained pitiful. This supply-demand imbalance has lowered the cost of ocean shipping, but has raised concerns among vessel operators, insurers and regulators about the potential for catastrophic accidents, as "cost cutting measures such as reducing crew numbers, overworking and lack of training” have exacerbated the risks.

 

The MSC Oscar can carry 19,224 containers, making it the world's largest container ship...

 

As The Wall Street Journal reports,

The big container ships that ply the world’s trade routes are growing ever larger...

 

 

...holding down the cost of ocean shipping, but also raising concerns among vessel operators, insurers and regulators about the potential for catastrophic accidents.

 

 

Since the economic downturn, shipping lines have sought to stay competitive by running larger, more fuel-efficient container ships in major shipping lanes, reducing their cost per container, according to Noel Hacegaba, acting deputy director of the Port of Long Beach, Calif.

But bigger is not better... (as The South China Morning Post reports)

Trade growth no longer justifies such massive capital expenditure. Data from British maritime consultancy Drewry shows the gap between fleet growth and trade growth has widened since 2006.

 

Carriers now face a dilemma: without using the newest and largest ships to lower operational costs, they risk losing business; but by investing in a state-of-the-art fleet, they exacerbate a supply glut and poor freight earnings and may eventually struggle to stay afloat.

 

"Flooding the market with additional capacity is counterintuitive, and I believe all shipping lines know that," Lane said. "It has, however, become a case of 'you are damned if you don't, you are damned if you do'."

But, as The Wall Street Journal notes, their increasing size already is straining the unloading resources at some port facilities and—along with labor troubles—has contributed to major traffic snarls at the nation’s West Coast ports.

The larger ships will further test the capacity of ports and canals and the skill of their captains and crews. “There is a world-wide shortage of qualified seamen to command these vessels,” said Andrew Kinsey, senior marine risk consultant at insurer Allianz SE’s Allianz Global Corporate & Specialty unit and a retired ship’s captain. Capt. Kinsey added that human error is a factor in most shipping accidents.

 

...

 

“Cost cutting measures such as reducing crew numbers, overworking and lack of training” have exacerbated the risks, and could contribute to a shipping accident, said Jonathan Moss, partner and head of transport at law firm DWF in London.

 

A major contributor to the recent losses was the $2 billion wreck and subsequent efforts to salvage the cruise ship Costa Concordia, which ran aground in Italian waters in 2012.

 

The prospect of a similar incident involving a container vessel, which might carry 18,000 containers, “is one of our nightmares at the moment,” said Capt. Rahul Khanna, another Allianz marine-risk consultant.

With bigger ships, the risks are magnified. “The bigger the ship, the bigger the challenge,” said Nick Brown, marine communications manager at Lloyds Register.

A collision of two ships delayed traffic through the Suez Canal last September. Though the blockage was rapidly cleared and didn’t have much impact on costs, it illustrated what could happen. With much bigger ships, which offer less margin for error, the impact could have been much worse.

 

“I would compare it to driving a giant SUV like a Ford Explorer or Suburban, versus driving a midsize car. It is probably OK on the highway, but on a small, local road, with two cars passing, size becomes a challenge. There are fewer areas you can go with the vessels, and they are more susceptible to effects of wind and wave,” said Munich Re’s Mr. Dalton.

 

Also, not all ports can accommodate big ships, so the risk is concentrated among the few major ports that can. Insurers expect that risk to trickle down as bigger ships displace smaller ones at these ports and smaller ships are redeployed to replace vessels with even less capacity.

*  *  *

Oh the unintended consequences of centrally-planned, artifically-signalled mal-investment booms...

 

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Tue, 02/10/2015 - 22:53 | 5769826 Bill of Rights
Bill of Rights's picture

 Cloward Piven line 1:Homeland Security sets up Obama amnesty complaint hotlines for illegals

 

http://www.washingtontimes.com/news/2015/feb/8/homeland-security-sets-up...

Wed, 02/11/2015 - 07:10 | 5770438 supercelld
supercelld's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

Wed, 02/11/2015 - 09:12 | 5770587 Bollixed
Bollixed's picture

Virus Alert!

Wed, 02/11/2015 - 09:32 | 5770651 cnmcdee
cnmcdee's picture

Why stop at a 18,000 category size dollar store sea can hauler?  Why not build one that can carry 100,000! We can call it the SamWalton.. Then we can mount sea can rail guns on this bitch so when it approaches the shores of some underflooded country it can just start firing sea cans of crap at the shore.. Have at least a 10 mile range on it. Finally we can hook a pipeline to it from the federal reserve press and just start pumping money into the containers.. We can hold a parade lined in dollar bills in Obama's honor sprayed there of course by our loving Sam Walton the sea can and money sprayer super ship of eternity!! Finally we will just put the chinese factories directly on the ship with a raw product conveyor belt on it and a a return dollar store pipeline!! 

If we can just get Obama to allow the pipeline..

Dow to  3.0e 10 ^1283838383334 Prime to -4848383838%!!

And if you think this is too modest wait till the alien planets find out we discovered interplanetary travel!!!!

Wed, 02/11/2015 - 13:53 | 5772108 Johnbrown
Johnbrown's picture

You got vision, kid.

Tue, 02/10/2015 - 23:00 | 5769840 GeezerGeek
GeezerGeek's picture

I hear that the real estate market in Miami is flourishing. Can't they just park a few excess container ships there and convert them to condos?

Tue, 02/10/2015 - 23:03 | 5769854 Bollixed
Bollixed's picture

Tribe Towers?

Tue, 02/10/2015 - 23:23 | 5769909 toys for tits
toys for tits's picture

Looks like the recession is about to hit Somalia.

Wed, 02/11/2015 - 00:00 | 5770008 0b1knob
0b1knob's picture

Wasn't that part of the plot of Snow Crash?

Tue, 02/10/2015 - 23:15 | 5769884 cynicalskeptic
cynicalskeptic's picture

Container ship apartments - the perfect solution to rising sea levels.  The whole apartment ship rises along WITH the ocean level.

 

Though why you'd want to live in Miami is beyond me......  How much of the market is 'questionable' money out of Latin America seeking a 'safe haven'?   - like all those empty apartments in Manhattan owned by Russians, Indians Chinese and others looking to stash wealth......

Tue, 02/10/2015 - 23:05 | 5769862 Silver Bullet
Silver Bullet's picture

Fuck training, get the fuck out there!

Tue, 02/10/2015 - 23:07 | 5769864 TrulyStupid
TrulyStupid's picture

It seems to me that there is also a bubble in steel container construction.. surplus containers are everywhere and are being used for every purpose other than the one for which they're intended. They also represent a huge surplus inventory of scrap steel ready for the green shoots to sprout. Anyone have any hard data on this phenomena?

Tue, 02/10/2015 - 23:24 | 5769914 A Lunatic
A Lunatic's picture

They will be used for FEMA coffins when the brownshirt army comes for our gunz. That just never gets old......

Wed, 02/11/2015 - 10:05 | 5770592 Arnold
Arnold's picture

That's sick.

(And blackly funny, it's a dark joke,  you see, using tragedy in a mood lightening and somewhat prophetic way.)

We get it.

Ha Ha

 

----Alphabetagency.gov

Tue, 02/10/2015 - 23:35 | 5769947 cynicalskeptic
cynicalskeptic's picture

ONE WAY shipments - lots of containers going TO some destinations with NOTHING to go BACK to the point of origin in those same containers.

Look at the piles of empty containers in US ports - LOTS of containers COMING FROM China  but the US isn't shipping much (at least not in containers) to China.  The stuff we  DO ship - food and coal - go in bulk.  Same for the third world - they get manufactured goods in containers (and used clothers and LOTS of trash from the Industrialized world) on containers but aren't shipping anything back.  There's a major movement to convert containers into housing and other uses as a result.

 

Wed, 02/11/2015 - 01:06 | 5770139 cornflakesdisease
cornflakesdisease's picture

Don't forget scrap steel and bulk used paper and cardboard.

Wed, 02/11/2015 - 04:09 | 5770333 HardlyZero
HardlyZero's picture

If things get really bad landside, those ships might provide many acres of living space at sea.  Just drop anchor 10 miles off shore, but get supplies...that would be hard.

I'd see them as possible modern Noah's Ark.  Might stay afloat long enough to wait out the landside madness.

Never know.

Wed, 02/11/2015 - 09:17 | 5770599 Arnold
Arnold's picture

Long fishing poles then?

Wed, 02/11/2015 - 12:08 | 5771469 Relentless
Relentless's picture

Very long fishing poles, those boats are BIG!

 

Wed, 02/11/2015 - 14:48 | 5772427 InflammatoryResponse
InflammatoryResponse's picture

don't be silly the pole doesn't have to be the long.  you just need miles of fishing line.

 

Tue, 02/10/2015 - 23:07 | 5769865 opt out
opt out's picture

alrighty then. hold on... let me check my 'Big List of Things that Give Me Nightmares'''.... ok, here it is.... lemme see.... ummm.... ISIS... Central Banks.... Unvaccinated, Illegal Aliens... Large Snowstorms.... huh. No 'Giant Shipping Container Cargo Ships? Gimme a second... OK! It's on the list! *PHEW!* - good to know what is out there to potentially scare the shit outta me when I leave the house tomorrow. Hope my Airbag doesn't deploy and give me Ebola... 

Tue, 02/10/2015 - 23:21 | 5769904 A Lunatic
A Lunatic's picture

You forgot Somali Pirates. You should also hope Mr. Yellen does not reach out from under your bed, when you get up to pee in the middle of the night, and drag you under the bed and feed on your soul.........

Wed, 02/11/2015 - 00:46 | 5770102 Captchured
Captchured's picture

I'd fucking up-vote you ten times if I could. I fell for this click-bait and I am a lesser man for it. It is difficult to describe how much I hate and love this site all at the same time. Perhaps the easiest way is to say that I used to just be able to say that I loved this site. 

Tue, 02/10/2015 - 23:10 | 5769869 db51
db51's picture

lmao....could you imagine what a well placed torpedo from a sub would do to one of those things.   KABOOM!   There's be containers washing ashore all over the planet.  Imagine all the swim noodles on the beach.....Legos and other shit.  It would be epic.

Tue, 02/10/2015 - 23:37 | 5769954 cynicalskeptic
cynicalskeptic's picture

More than enough containers get washed off ships in major storms normally.   The Pacific NW coast was littered with running shoes from one container a while back.

Wed, 02/11/2015 - 03:18 | 5770293 OldPhart
OldPhart's picture

"Imagine all the swim noodles on the beach.....Legos and other shit.  It would be epic."

As if sole searing sand wasn't enough, imagine the pain of third degree burns while stepping on a fuckin' lego!

Tue, 02/10/2015 - 23:13 | 5769879 Creepy A. Cracker
Creepy A. Cracker's picture

Algore and Michael Moore are too big to sail as well.  Catastrophe just waiting to happen if they tip over.  Their carbon footprint is ENORMOUS!

Tue, 02/10/2015 - 23:20 | 5769899 nmewn
nmewn's picture

OMG!

My smart, voice recoginition Samsung TeeeVeee connected to DHS (third parties) could be in peril!!! ;-)

Tue, 02/10/2015 - 23:23 | 5769908 NoDecaf
NoDecaf's picture

why not just make a pontoon bridge across the pond with all those empty containers?

Tue, 02/10/2015 - 23:26 | 5769922 A Lunatic
A Lunatic's picture

Why not just fill them with corrupt politicians and cement and sink them in the Marianas Trench.....?

Tue, 02/10/2015 - 23:36 | 5769951 gafgroocK
gafgroocK's picture

 

 

 

I wish I could up vote you 10X

Wed, 02/11/2015 - 03:20 | 5770295 OldPhart
OldPhart's picture

I peddle rock.  Cement and rock have much more productive uses.

Just launch the politicians in their containers over the trench.  The unending weight of their bullshit would sink them in no time.

Wed, 02/11/2015 - 04:53 | 5770369 kchrisc
kchrisc's picture

Guillotines are more better.

The banksters need to repay us.

Wed, 02/11/2015 - 13:29 | 5771993 ThisIsBob
ThisIsBob's picture

Because shit floats?

Tue, 02/10/2015 - 23:46 | 5769977 fockewulf190
fockewulf190's picture

With the Baltic Dry Index now at all time lows, we should be seeing pictures, and reading news reports, about fleets of empty freighters anchored in ports around the world.  Remember this picture from 2009?  

http://dailygumboot.ca/wp-content/uploads/2011/02/Port-of-Singapore-300x...

I wonder how the Port of Singapore looks today. The problem must be way worse than back in 2009.  Even with bigger ships in operation, most of those parked freighters you see in the picture are probably still operational today.  I have a feeling an all-points bulliten to the MSM has gone out NOT to report on, or take any pictures of, masses of anchored empty ships crowded at ports.  That would prove that there is a massive trading problem going on...something the central planners do not want to deal with.

Wed, 02/11/2015 - 00:17 | 5770055 Bobportlandor
Bobportlandor's picture

I don't know why I should give away my Ideas for free, but why don't shipbuilders build ships like trains with one engine towing lots of barges. This way traversing the panama canal or entering harbors could be negoiated by unlinking and allowing tugs to manuver the smaller vessels.

Also this would allow them to adjust the size of the train to accommodate the economy.

Patent pending

Wed, 02/11/2015 - 00:22 | 5770063 toys for tits
toys for tits's picture

Resistance is far greater on water than rails.

Wed, 02/11/2015 - 00:59 | 5770126 cornflakesdisease
cornflakesdisease's picture

Just wish to interject, that when the Nicaragua canals go through, California and the $147,000 dock workers salaries are toast.  It will all come into Houston and Alabama.

 

Man, California is in deep doo doo.

Wed, 02/11/2015 - 01:14 | 5770147 franciscopendergrass
franciscopendergrass's picture

money travels where it is treated the best.  taxes, regulations and unions do not treat money well.  california with its vast industries, resources and talent is always fucking itself.

Wed, 02/11/2015 - 02:11 | 5770225 Magnum
Magnum's picture

I think $147k is too low a figure--those workers slowing down freight terminals are bargaining for even higher salaries, and separate benefit packages.  It's over $200k/yr in sum.

Wed, 02/11/2015 - 04:51 | 5770366 kchrisc
kchrisc's picture

"Nicaragua canals go through"

Nicaragua has WMDs, and Niger "yellow-cake."

Time to bomb, and drone, their schools, and wedding parties.

The banksters need to repay us.

Wed, 02/11/2015 - 09:22 | 5770609 Arnold
Arnold's picture

"We picked the right time to go on strike"

 

---Steve A Dore

Wed, 02/11/2015 - 01:09 | 5770145 franciscopendergrass
franciscopendergrass's picture

First it was tankers and now container ships and freight trains.  I'm surprised truckers have not been affected as much or is that the next to fall?

Wed, 02/11/2015 - 02:06 | 5770216 Magnum
Magnum's picture

Spoke tonight with a supplier in Asia who I've known for 15 years.  This person just speaks straight up.

"I've been sick lately.  All of my workers have nothing to do.  If you want to order today we can ship it to you first week of March" (usually I have to order 10 weeks in advance)

"The economy here is TERRIBLE and there are no jobs for workers.  Whatever you want to order we can do it"

I order stuff that's labor-intensive.  Two years ago I had to order months in advance and I got endless stories about how there were no workers available to manufacture the products.  I thought they were bullshiitting me but now I hear a different story so make what you want of it.

 

Wed, 02/11/2015 - 02:15 | 5770234 trader1
trader1's picture

"Oh the unintended consequences of centrally-planned WEALTH EXTRACTION EXERCISES FOR "ELITE" INDIVIDUALS AND CORPORATE INTERESTS, artifically-signalled mal-investment booms..."

 

FTFY

Wed, 02/11/2015 - 03:02 | 5770274 Dragon HAwk
Dragon HAwk's picture

The other issue of course.. is  you have to fill the whole darn ship to be profitable.. so you got people scrambling and price cutting to get their ship filled so it can sail.. a smaller ship has a advantage if it is LTL less than loaded and only needs a few more  cans to fill up. imagine thinking you are gonna sail with 500 containers and somebody drops out or cancels or  doesn't get their letter of credit in time.. and your sitting. sweating bullets looking for freight. it ain't like a tractor trailer , send it out empty almost because you have to keep the customers. not when your loosing millions instead of hundreds

Wed, 02/11/2015 - 04:33 | 5770279 Angry Plant
Angry Plant's picture

To many countires flooding market with new ships sold at under production costs.

Then you have smart money buying ships at 75% of there production cost thinking prices for new ships will eventually go up and they will come out ahead.

Now though were at step where many existing compaies go under flooding market with nearly new ships sold at 50% of cost, crushing those supposedly smart investors who bought at 75%.

What happens next is just outright theft as some shipping companies simply stop paying loans and keep shippimg anyway with there now 100% below cost ships. Shipping to ports where they know creditors can't reposess the ships from.

Then finaly we arrive at end game where you have navies chasing down ships on the open seas for there countires banks.

Wed, 02/11/2015 - 03:33 | 5770303 Your guess is a...
Your guess is as good as mine's picture

So the 'point' of this article is we have too many big ships, so not enough sailors and not enough demand for the ships - or the sailors.... 

 

We're in a whirlpool of aaaahhh!!

Wed, 02/11/2015 - 03:36 | 5770306 OldPhart
OldPhart's picture

My company is along side a Burlington Northern Santa Fe rail line that goes from Barstow through the Cajon Pass to San Bernardino and Los Angeles.  I've observed multiple trains per day over the last ten years.

Eight years ago trains would head north to Barstow loaded with Chinese containers.  These would be on the downslope after coming over the pass, usually five to ten engines involved, and heavily chugging.  Heading south there would either be three or four engines pulling a mile or two of powder cars presumably carrying cement and/or flyash or a one/two engine pulling a mile of containers up the hill at breakneck speed.  From the sound, the containers were empty.

Now, the usual northbound has any number of engines, a mile of container cars that are at best 40% loaded.  I've seen mile trains that have been completely empty container cars. Southbound I'm seeing coal oil, coal, and ADM.  These trains are now multiple engines straining at making it over the hill. First time I saw coal here in the Desert for about thirty years.

Wed, 02/11/2015 - 04:03 | 5770324 HowdyDoody
HowdyDoody's picture

Rising* markets sink big ships

* - for some meaning of rising

Wed, 02/11/2015 - 04:43 | 5770363 kchrisc
kchrisc's picture

Won't matter soon, as the dollar is about to get all wet, and if you've ever handled wet toilet paper before...

The banksters need to repay us.

Wed, 02/11/2015 - 10:51 | 5771089 PTR
PTR's picture

The ship can re-purposed.  Oligarch Get-away?  Fantasy Island-everywhere?  Floating FEMA camp?  Central bank boating-accident-for-hire? (Hey, they lose gold too.)  The possibilities are limitless.

 

Wed, 02/11/2015 - 11:12 | 5771200 Lostinfortwalton
Lostinfortwalton's picture

If you have a few large ships replacing many smaller ones how can you have a shortage of crews?

Wed, 02/11/2015 - 15:08 | 5772518 InflammatoryResponse
InflammatoryResponse's picture

 

you have different captains ratings for different ships.

you can't just go from the SS Minnow to the Maersk HolySHIT that's a lot of containers ship.

 

 

Wed, 02/11/2015 - 17:30 | 5773089 Rootin' for Putin
Rootin' for Putin's picture

Bullish for artificial reefs!

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