What matters for liner operators are the trade figures. In the first half of 2001, the U.S. imports have decreased by 12.5 % on an annual basis while the Taiwan, Japan or Singapore exports fell by 25 %. The number of ships idle (spot) rose strongly in the 1,000 to 2,500 teu range during the first half of 2001. In the second half of the year, several ships of 2,500 to 4,000 teu were left idle at the end of their charter. And when these large ships find employment, it is at depressed rates. Conversely, smaller ships of 500 to 1,200 teu have remained in strong demand for feeder or short-sea and mid-sea trades. Their rates have decreased, but they have not plunged.

Quite remarkably, the difference in charter rates between small and large ships has shrunk considerably, as already seen in previous depressions. At the end of 2001, ships of 500 teu got $4,500 per day, while ships of 3,000 / 3,500 teu could not expect more than $10,000.

The capacity monitoring schemes implemented in the fourth quarter on the Europe-Far East and on the Transpacific trades led to more pain. Many operators are embarrassed by the large ships they received throughout the year. These schemes made it possible to trim the East-West capacity in an unprecedented way in the containership era.

One thing is clear: owners of vessels dedicated to the charter market support the brunt of the capacity cuts. Not only do they see some of their ships idle at the end of their charters (especially the large ones), but they have suffered from a dramatic fall in charter rates. Charter rates for large ships have halved since their peak of the Summer 2000.

All is not negative however. The downfall in box rates has its positive side as lower rates allow the carriage in containers of low priced commodities, or neo-bulk cargoes commonly carried on cargo vessels or bulk carriers. The drawback is that these cargoes are mainly heavy ones, but huge quantities of bagged rice, some steel products such as small pipes or steel wire, aluminium coils, forest products' can also be containerised. Seeing that some of these cargoes are currently carried by over-aged cargo vessels, which are to disappear in the coming two years or so with the 2002 enforcement of the International Safety Management (ISM) code for general cargo vessels, we believe that there is a card to play for containerships. Once in the box, such cargoes could be retained by containership operators, as far as rates remain attractive enough. Very Large Container Ships (VLCS) would help to capture these cargoes in case of a market recovery, although if rates are really booming it would make sense to cast longing glances at more rewarding cargoes.

It should not be forgotten that in the medium-term, the new capacity now coming on the market will be absorbed. Orders will have to flow again. Recent history has shown that seaborne container transportation has always grown more quickly than international trade as a whole. However, there is comparatively less growth expected than in the past, when a lot of break-bulk trades had yet to be containerised. International trade itself grew at twice the growth rate of the world economy in the past two decades. Assuming an annual growth of 7 % in container trades, the fleet needed in 2010 will be twice as big as the 2000 one. Nevertheless, it remains to be proved whether this rule of thumb is to be repeated in the future.
 

Plans to order container-ships of 9,000 teu and over have been put on hold, but the current gloom will have an end as international trade will continue to grow. With this in view, ULCS (Ultra Large Container Ship of 12,000 to 14,000 teu) is a viable option, at least for the largest carriers.

It would not be surprising to see the first of such ships sailing by the middle of the decade. Maersk-SeaLand is the best placed in the race for the coming two or three years: most of its key hubs will be fitted with eight or nine 22-row cranes, able to serve 55 or 56 metres-wide ships, with lengths which could reach 410 m to remain compatible with stability requirements (i.e. ships of 14,000 teu).

There is a consensus which has emerged, saying that the 9,000 teu ship, and more surely the 12,000+ teu ship, is a perilous adventure. For the 18-row 9,000 teu ships, there are already plenty of terminals which can handle them. They are in fact not much bigger than Maersk-SeaLand's 'S' class (with an estimated real intake of 7,960 teu at six tiers on deck). The main problem is to fill them on a high volume route, while keeping other options on parallel routes in order to offer a sufficient number of direct links and, hence, competitive transit times between a number of ports.

Surely it is a perilous affair for the 12,000 teu ship (and even for smaller ships of 22 row breadth), as these ships will rely solely on a given route because so few ports will be adequately equipped to handle them, at least in the beginning. Such an argument is nothing new. In the late 60's, it was often said that containerisation would remain an East-West affair for the very same reasons. The conservative companies specialising in North-South trades at that time and sticking to this idea are no longer there.

Given the volumes concerned on routes such as Asia-Europe or Transpacific, individual operators would find it difficult to venture into this kind of project (Maersk-SeaLand set aside). A grouping of lines within a tight consortium would be needed in order to share the financial burden and ensure the viable long-term operation of high volume strings with ULCS (and not a mere technical "alliance", which is no more than a slot swapping arrangement).

Such a concept sends us back 30 or 35 years, when rival operators had to regroup in what were then called "integrated consortiums" in order to replace armadas of general cargo vessels with a handful of large, costly containerships on key routes. In such consortiums, day to day receipts and expenses were fully pooled, with a joint managing entity.

Alas, such consortiums are today outdated and the pioneers such as Trio or ScanDutch are now history. In a world where things are prone to change overnight, tight agreements are not the recommended way. Only a new wave of mergers and acquisitions could make the ULCS option a reality in the medium-term.

High volumes carried on inter hub "container pipe-lines" justify the advent of ULCS. Such pipe-lines will come on top of parallel direct services, including shuttles linking two or three ports. They complement container pipe-lines between key regional ports, on the East-West traditional routes as well as the North-South ones.

After all, the pattern of North-South routes has become the same as on East-West routes, only the average size of ships makes the difference. Whatever the cargo and the route are, the transport units are the same: 20 and 40-feet boxes (put aside specialist equipment such as reefers), and they are handled by the same standardised terminals. The accompanying tariff-making process is made easier by the expansion of the "Freight All Kinds" approach.

Such an evolution will also lead to the "commoditisation" (a neologism) of container transport. In other terms, the transport of a container from point A to point B (including inland destinations) could be traded as a commodity, thus clearing the ground for the setting up of a futures market, with shippers hedging against variations of box rates. In such a world, the carrier with the lowest cost regarding other logistics input, such as transit times and reliability of service, will win the game.

VLCS and ULCS will surely play their role in this equation. Yield management, i.e. the best possible use of the available capacity (as already applied in the passenger airline industry), will also continue to develop. With all this in mind and with very large ships coming, allowing economies of scale as yet unseen, there is little doubt that the nature of the competition is to change in the current decade.