25-01-2017

Container Shipping: What next for the smaller TEU fleet?

Cship

The world is becoming an ever smaller place and the ability to conduct business with the most competitive companies globally is paramount for survival. The emphasis on customer needs now provides competitive advantage, and in the case of the container market, this may present opportunities for smaller TEU vessels.

These containerships, which generally fall into the 1,000-4,999 TEU size range, were once pioneers laying a foundation for the modern behemoth of the container market. Later, when the focus shifted to their bigger and younger sisters and the economies of scale they provide, smaller vessels started to quickly lose their appeal. Now, after the opening of the new Panama Canal locks, they no longer hold their main advantage and many believe they are facing a maybe slow, but certain extinction.

However, their fate might not be as dire as all that. With big liner services and the largest ships mostly serving the big hub ports, smaller vessels may still embrace their advantage of flexibility and concentrate on the more niche trades.

The opportunity lies in the fact that logistics costs for the end client do not end once the containers are dropped at the port of delivery. What usually follows is a long inland leg via trucks or trains. And this part of the journey is costly. It is especially so, in the hub ports, where huge demand for carrier services may often inflate the price.

Smaller TEU vessels can sometimes be a cost-saving solution, if they take the side street and deliver the required volume of cargo to an alternative port, which is smaller and potentially cheaper in terms of final logistics expenses.

They also may provide a better service for niche arbitrages in commodities like sugar, scrap or petrochemicals. Using smaller container vessels in such cases may allow a leaner, just in time delivery of an entire cargo to a nominated port instead of waiting for a scheduled liner service.

However, such opportunities are not usually frequent and should be grasped early, so the smaller TEU vessels still represent the value-adding cog in the supply chain machine.

Source: Platts 

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