Cosco to Order 11 Container Megaships, Adding to Ship Overcapacity

BN-KF776_coscos_M_20150910085050LONDON—Chinese shipping and port giant Cosco Holdings Co. said late Wednesday that it would order 11 container megaships, joining an array of competitors in their quest to dominate the world’s busiest trade routes.

The so-called Triple-E’s, which are roughly as long as the Empire State Building is tall, will cost a combined $1.5 billion and will each carry 19,000 containers from China to Northern European port hubs such as Rotterdam, in the Netherlands, and Hamburg. Cosco said the order would go to four Chinese yards, which it didn’t name.

The Wall Street Journal reported the impending Cosco order in April. At the time, some senior company executives had reservations about following bigger competitors—including Maersk Line, a unit of Denmark’s A.P. Møller-Maersk A/S, Switzerland-based Mediterranean Shipping Co. and France’s CMA CGM SA—that already operate dozens of such behemoths.

Container shipping, which moves 95% of all manufactured goods, has been in the doldrums over the past decade. An estimated 30% overcapacity in the water has sent freight rates to levels that at times don’t even cover the fuel cost of moving the containers across the oceans. China’s economic slowdown this year and anemic growth in Europe have exacerbated fears that ordering such large and expensive vessels might backfire.

“Cosco’s concerns were well-founded, but at the end they have to keep up with their bigger rivals if they are to compete in the Asia-to-Europe route,” said Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen. “Over the next couple of years, any ship carrying below 12,000 boxes won’t be able to compete in terms of cost.”

Fully loaded, Triple-E ships cut the cost of moving a container across the oceans by about 25% compared with smaller vessels. The cost benefit comes from modern, fuel-efficient engines and ship alliances that share resources across their networks.

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.

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