In the current COVID-affected trading climate of 2020, container volumes on the South Africa-Far East liner trade route, as on all other major international container trade routes, have fallen below recently-recorded levels, but in the longer term, the large French container operator in question here needs to plan carrying capacity into the future. Its market analysis indicates that post-COVID container volumes will recover quite quickly, and that longer-term SA/Far East seaborne trade prospects are likely to improve as the Chinese economy regains strength, and as benefits flow from South Africa’s membership of BRICS. They are also encouraged by Transnet’s commitment to provide additional deeper-water container berths in the port of Durban. The company therefore plans to increase future carrying capacity on the Far East route on a more permanent basis.
If the company increases capacity by placing orders to replace its full current fleet of seven 6,000-teu vessels with seven larger 8,000-teu ships of new construction, would you expect potential sea transport costs, in terms of $/teu/day, to increase, decrease or be unaffected? Provide full reasons and argument to support your answer.
(15 marks)
Would your analysis and expectation be different if the increased carrying capacity was achieved by adding an eighth vessel of the same size and operational specifications as each of the original vessels? Once again, provide reasons for your conclusions.