UASC: Size matters

UASC: Size matters

Dubai: For at least five years now, the container sector has been in indifferent health. Several efforts have been made by the big players to improve profitability – forging alliances, resorting to slow steaming, announcing unmaintainable rate restoration initiatives.

United Arab Shipping Corporation (UASC) thinks it has the problem licked by introducing such economies of scale into its operations as to remain profitable with even rates that, on the face of it, appear unremunerative.

“If we have good load factors, and resort to slow steaming, our slot costs go down significantly,” says the Dubai-headquartered shipowner’s president and CEO Jorn Hinge.

“We can ensure that our slots are filled by having joint container pools, joint terminal contracts and container interchange arrangements,” he adds, in a nod to ongoing speculation that UASC will be drawn into some container alliance soon.

“Alliances make good sense in liner shipping. They allow lines to adjust capacity more easily to fluctuating market demand,” Hinge says.

UASC’s belief in its strategy is apparent from a fresh $2.3bn newbuilding programme at Korea’s Hyundai Heavy Industries, involving 11 latest-generation 18,000 teu leviathans, of which partner China Shipping Container Line (CSCL) has ordered five – for delivery beginning the second quarter of 2015.

These marine jumbos are in addition to an equal number of 14,000 teu vessels already on order, and which will start joining the fleet from November this year. Many of them would use the freshly dredged Panama Canal.

“We had a very good experience with the operation of our 13,000-teu A13 class containerships, which were delivered to us in 2012,” says the jovial UASC boss.

“We were able to save almost $200m in slot costs with these fuel-efficient vessels, and they encouraged us to go in for the even larger sized ships. We also decided to scrap our entire old lot of fuel-guzzling 2,000 teu A2 vessels.”

However, UASC lacked the confidence of being able to fill all the 18,000 slots on its own, and decided to ink a slot-sharing deal with CSCL. “We can now get the operational savings, and with a reduced risk of underutilisation,” says Hinge.

The jumbos that Hyundai Heavy are constructing will feature several design innovations, including long-stroke engines which provide a slightly lower top speed, but substantially better fuel economy, as well as waste heat recovery systems. Premium hull coatings will minimise resistance through the water.

“We have been told that the largest ships will run at 18 knots between Asia, the Middle East and Europe, and at 16 knots on the return leg,” says Hinge.

With bunker prices accounting for a large chunk of running expenses, UASC opted for ‘LNG ready’ designs that will allow the vessels to be swiftly retrofitted for predominantly LNG burning, once a suitable international bunkering infrastructure is in place. It is the first container line to opt for a design that uses the environmentally friendly fuel.

Additional savings via a significant internal reorganisation should also help UASC make further annual savings of around $250m. Lean yet large seems to be the way for UASC. [22/08/14]

 

NEED TO KNOW:  UASC
United Arab Shipping Corporation (UASC) was set up by the governments of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates in 1976. Qatar’s holding of the containerline now stands at 51.3% after a series of capital increases. UASC’s huge orderbook should see it operate a fleet carrying more than 500,000 teu in the coming three years.

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