By Lauren Dodillet

China Shipping Container Lines Co. (CSCL)a subsidiary of China Shipping Group seeking to buy 10 ultra-large ships for $1.5 billion, reports the Wall Street Journal. The ships can carry up to 20,000 intermodal containers each, and will help the company to fulfill capacity commitments for its Ocean Three Alliance, a three-way agreement between CSCL, France’s CMA CGM SA, and the UAE’s United Arab Shipping Co. aimed at boosting operational efficiency.

Shipyards Dalian Shipbuilding Industry Co., Shanghai Waigaoqiao Shipbuilding Co., and Hudong-Zhonghua Shipbuilding Group Co. are potential candidates for the contract, which will be announced at the end of this year. The ships are expected to be delivered in 2018 or 2019.

The ships acquired from the contract will also add to a more than 30 percent excess gap in the water between Asia and Europe, which is causing freight rates to fall drastically. The economic slowdown in Asia (China in particular) is also contributing to a 10 percent drop in goods shipped between the two continents. Imports in European luxury items have decreased by as much as 17 percent since the mid-August devaluation of the Chinese yuan.

Still, if CSCL wants to vie against its competitors it will have to increase its own capacity, says Jonathan Roach, a container shipping analyst with Braemar ACM Shipbroking. The ultra-large ships won’t only increase the company’s capacity, but make it up to 25 percent cheaper to ship a container of an ultralarge carrier compared to an older, smaller ship.

Last week CSCL reported a 97 percent drop in the first half of 2015 since the same time last year due to declining freight rates. The company’s total profits so far this year amount to $1.7 million. The company has increased its capacity by 182,000 containers in the first half of 2014 to its current total of 908,579.

(Photo by via Flickr)

Posted by Lauren Dodillet