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China Cosco Shipping has ordered 11 ultra-large container ships worth $1.51 billion, the largest vessels in the company's history, to maintain market share.
South Cinshipyards will build the 19,000-TEU ships, all to be delivered in 2018.
"19,000-TEU ships are essential for Cosco," said Daiwa Securities analyst Kelvin Lau. "Some shipping companies have already ordered up to over 20,000-TEU class ships."
Currently, China Cosco's biggest ships are eight 13,350-TEU vessels and it placed an order to build five 14,500-TEU container ships last year.
The new 19,000-TEU ships are expected to serve the busiest Asia-Europe trade routes. "The downtrend of freight price is inevitable as more and more large vessels come to the market," Lau said. "If you don't build large ships, then you can't keep your margin."
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But some analysts do not think such a trend is healthy.
"If container lines remain focused on upsizing their fleet to the super-sized +18,000-TEU mega vessels, this could lead to longer-term pain for the sector given additional newbuild orders are slated for delivery from 2017 onwards," a Macquarie research report said.
China Cosco said the funds to buy the ships would come from internal resources and bank borrowings. It will also receive huge subsidies from the central government for ordering the ships as Beijing has promised to grant $234-per-gross-ton to shipping companies replacing old ships, with 50 percent awarded once the scrap sale is completed and the remainder payable after placing newbuilding orders.
For more of the South China Morning Post story: www.scmp.com
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