Container shipping major Maersk has announced it has placed orders and charter contracts for 800,000 TEU worth of ships – that’s about 50 to 60 vessels, including both chartered and owned vessels.
Maersk will buy about 300,000 TEU worth of ships and the remainder will be 500,000 TEU of time-chartered capacity.
This is a continuation of Maersk’s fleet renewal programme and, interestingly, the vessels will be dual fuel split between green methanol and bi0-liquefied natural gas.
“In line with Maersk’s commitment to decarbonisation, all vessels will be dual-fuel with the intent to operate them on low emissions fuel. To ensure the long-term competitiveness of the fleet and its ability to deliver on the decarbonisation goals, Maersk has elected a mix of methanol and liquified gas dual-fuel propulsion systems. While green methanol is likely to become the most competitive and scalable pathway to decarbonisation in the short term, Maersk also foresees a multifuel future for the industry which includes liquified bio-methane. Once the vessels have been delivered, around 25% of the Maersk fleet will be equipped with dual-fuel engines”.
A quick oversimplified explanation is warranted here: liquefied natural gas (LNG) is basically the compound gas methane (CH4) that has been purified of trace gases, been cooled to -160 degrees Celsisus, which causes it to shrink in volume by a factor of 600, and it is put under pressure too. Normally, LNG is manufactured after methane and other trace gases (ethane, amongst other gases) is extracted from underground hydrocarbon reservoirs. Methane, being made of hydrogen and carbon, is a hydrocarbon.
Combusting LNG is much cleaner than fossil fuels – there’s a lot less particulate matter, nitrous oxides, sulphur oxides and the like, and about 25% less carbon dioxide.
LNG, however, can be made.
And it can be made with renewable energy from renewable feedstocks.
Hydrogen can be obtained from splitting water (H2O) with electricity generated from renewable sources such as solar power, which releases the valuable industrial gas oxygen as a byproduct. Combine that hydrogen with carbon dioxide, which can be generated by using microbes to digest organic material, at a temperature of 300 to 400 degrees Celsius and put it under pressure and you will create methane and water. This particular form of methane is theoretically carbon neutral because the carbon came from organic matter (e.g. plant agricultural waste), which, when it was alive, incorporated atmospheric carbon into its tissues through respiration. So when the methane is burned, the carbon dioxide that is release is merely returned to the atmosphere from whence it came so there is no extra carbon burden. That contrasts well with the burning of fossil fuel methane, which adds extra carbon back to the atmosphere. So, in theory, carbon neutral.
The new fuels will be dual fuel: “The exact split of propulsion technologies will be determined considering the future regulatory framework and green fuels supply,” Maersk says, adding that the group has begun work on securing offtake agreements for bio-LNG to ensure that the new dual fuel vessels provide greenhouse gas emissions “in this decade”.
“By diversifying our fleet and fuel options, we gain the flexibility, knowledge, and experience to cater to a future with multiple fuel paths,” the company adds.
The new Maersk vessels will be ordered in a range of different sizes so as to fill out Maersk’s network but, Maersk adds, the orders will not add to overall capacity as, over time, each vessel new vessel will replace an old vessel and Maersk plans to keep its fleet at about 4.3 million TEU.
So while the mega-order from Maersk will take place over time and will not meaningfully boost capacity, container shipping analysts are describing the current buying frenzy as just that: a frenzy, with Jan Tiedemann of Alphaliner describing it as “almost scary”.
And a lot of big ship operators have put in orders for a lot of big ships. According to Tiedemann, CMA CGM has put in an order for ten ships of 13,700 TEU; ONE has order six vessels of 8,400 TEU, Eastern Pacific has ordered eight vessels of 18,000 TEU, and Mediterranean Shipping Company (the world’s biggest container shipping company by TEU) have ordered 12 ships at 19,000 TEU and 12 ships at 21,000 TEU (so 24 ships).
And there are many more yet to come.
Alphaliner’s top 100 consolidated figures (based on the existing fleet and the orderbook) suggests that there are / will be over 7,047 active container-capable ships of which 6,253 will be fully container (fully-cellular in the industry jargon), with a total carrying capacity of about 30.43 m TEU.
Global freight forwarder DHL notes in its most recent August 2024 update that 1.67 m TEUs worth of newbuildings have been delivered this year and another 1.47m TEUs are expected to be delivered later this year.
Freight rates on the slide
The benchmark Drewry World Container Index slid 3% to USD$5,551 per forty foot container this week as all the main routes slid down, down, down.
Rates per forty foot are now 47% below the pandemic peak of USD$10,377 in September 2021 and the average composite index year to date is USD$3,996 per forty foot, which is still considerably higher than the ten-year average rate of USD$2,791 (although that rate is COVID-period inflated).
That said, freight rates haven’t declined across the board. While freight rates on the front-haul Asia-Europe, Asia-US routes have generally come down, there have been some increases on the back-haul rates, such as Rotterdam to New York and Rotterdam to Shanghai, which both increased by 1% per forty footer.
“Drewry believes that spot rates have peaked, but continued shipping disruptions will keep a floor under the spot rates for some time,” Drewry states.
Turning to last week’s Ningbo Containerized Freight Index (unfortunately, Ningbo publishes an update each week after this summary is written), Ningbo reports that seventeen of the 21 routes it monitors had fallen, noting that the supply of shipping capacity is relatively sufficient and that the freight rates of the major trade lanes continue to fall.
It would appear the injection of extra capacity into the main trade routes, which appears to have come both from massive deliveries and a re-allocation of capacity away from secondary trade lanes to the primary trade lanes, has had the effect of halting and putting into reverse the spiralling spot rates. Although, it should be noted, a general rate increase as been announced for the second half of August an the Asia-US routes and Peak Season Surcharge negotiations are “very intense”, according to logistics software platform Flexport.
Emily Stausbøll, Xeneta (a logistics software platform) Senior Shipping Analyst commented “this is a pivotal time for the market. Shippers will be hoping the spot market crashes back down hard and fast, while carriers will be doing everything possible to keep short term rates elevated for as long as possible.”
Meanwhile, Peter Sand, a world-renowned container shipping analyst who works for logistics software company Xeneta analysed the spiralling freight rates of recent months. He argued that shippers [i.e. the people who own the cargo (i.e. not the people who operate ships – they’re called “carriers”), “wanted to protect supply chains and that has come with a heavy price tag. The massive volumes shipped in May and June contributed to the severe congestion seen in ports in Asia and the dramatic spike in rates, I’d say”.
It’s a fairly old story – freight rates get high, shippers (the people who own cargo) panic, and in a rational attempt to protect their own interests bid up the market thereby increasing the costs for all shippers. We saw this exact same dynamic with the container ship charter markets over the last few months, and we saw it with freight rates during COVID and in the container ship charter markets during COVID.
Incidentally, this view has a bit of support from recent analysis released by Sea-Intelligence in “No sign of a sudden US spending boom”, which notes that the latest official US data shows that there has not been a boom in spending by the US Consumer, ” lending support to the notion that the early peak season for container goods is driven by front-loading of imports”, Sea-Intelligence muses. That said, some of that front-loading probably also happened as shippers sought to beat tariffs imposed by the Biden Administration, which in May announced hikes on about USD$18 billion of goods. Presidential candidate Donald Trump has apparently also vowed to introduce significant tariff hikes – said to be a new 10 per cent universal tariff on all imports and a 60 per tariff on all imports from China.
So while demand has been high owing to front-loading, demand is expected to remain high throughout quarter three, according to DHL, which adds that – despite weakening Purchasing Managers’ Indices and business expectations falling (due to electoral uncertainty), “the data indicates stronger global growth momentum compared to late 2023”.
Front-haul spot rates tend to attract all the attention, but it is worth paying a little attention to the long-term market. Xeneta points out that its XSI index, especially its sub-index for Far East Exports which covers the Asia-US and Asia-Europe routes, have been experiencing a rise at the same time as the spot rates are beginning to soften. Xeneta comments that the long term rates on the major front-hauls may now be showing signs of upward pressure.