Bigger Is Better as Hyundai Heavy Sees Mega Ships Leading Demand

Hyundai Heavy Industries Co. expects mega-sized container ships to lead global orders until early next year as shipping companies seek ways to cut costs.

The company and its Hyundai Samho Heavy Industries Co. unit could win orders for as many as 11 vessels in July, said Ka Sam Hyun, a senior executive vice president in charge of ship sales at Hyundai Heavy, the world’s biggest shipbuilder. The South Korean company is in talks with a few shipping lines that may soon lead to agreements, he said.

“Shipping lines won’t be able to survive if they can’t bring down their unit costs,” Ka said June 26 in an interview in Seoul. “Freight rates have recently fallen a lot, with rates to Europe from Asia at about a sixth of last year’s average. That’s why shipping lines want bigger ships.”

He didn’t identify possible buyers or specify how many of the orders would be for mega ships.

Shipping lines are ordering ever-larger vessels to achieve economies of scale that can lower costs of moving a container, including fuel and port handling fees. Lower expenses would cushion the impact of falling shipping rates, particularly on the Asia-Europe trade lane, where fees are near historical lows.

Weekly spot rates for cargo to Europe from Asia slumped to $205 per 20-foot container on June 19, the lowest since the Shanghai Shipping Exchange started compiling data in 2010. Prices had risen to $548 as of June 26.

Demand Imbalance

Shipping capacity is outpacing demand as larger vessels enter service and spending slows in Europe, where unemployment remains above 11 percent.

“Rates continue to be pressured by severe supply-demand imbalances,” Bloomberg Intelligence analysts Lee Klaskow and Talon Custer wrote in a June 26 note. “Weakness is most prevalent in Asia-Europe lanes.”

Most vessels used now on the Asia-Europe route can fit at least 14,000 20-foot containers, according to Park Moo Hyun at Hana Daetoo Securities Co. There are more than 100 of these mega vessels in service, he said.

He declined to comment on a June 19 Tradewinds report that A.P. Moeller Maersk A/S, the world’s biggest container shipping company, signed a letter of intent with Hyundai Heavy for ships worth as much as $2 billion.

Hyundai Heavy expects to win orders for very large crude carriers, or VLCCs, Ka said.

Carrying Ore

Brazil’s Vale SA and shipyards in China are in discussions to build about 50 VLOCs, the Wall Street Journal reported in April.

Officials from Vale visited Hyundai Heavy early this year in relation to VLOCs, Ka said, without elaborating.

Hyundai Heavy has teamed up with a unit of India’s Larsen & Toubro Ltd. to take part in a bid to build liquefied natural gas carriers for Gail India Ltd., Ka said.

It will be competing for the contract against other Korean shipyards, each with a local partner: Daewoo Shipbuilding & Marine Engineering Co. is working with Pipavav Defence & Offshore Engineering Co., while Samsung Heavy Industries Co. is pairing with Cochin Shipyard Ltd.

Hyundai Heavy, Daewoo Shipbuilding and Samsung Heavy are the world’s biggest builders of the gas carriers.

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