1. Scapa Flow – the Container Hub Opportunity
Continued growth in world trade, together with the increasing containerisation of sea-borne trade, has led to the construction and use of ever-larger container ships. This in turn has necessitated expansion and development of ports capable of taking larger, deeper-draught ships. In addition there has been a shift towards hub and spoke service networks, which are now generating demand for new offshore transhipment terminals, to allow optimum use of larger vessels, and as a solution to congested, physically constrained and expensive traditional estuarine port locations.

2. Increasing Ship Size
The trend towards deployment of bigger container ships is a long-established feature of the industry. Post-Panamax ships of 5,000-7,500 teu and above now dominate the major world trades. Ship size is still increasing, with 9,600 teu ships due to be delivered in 2005, and before 2010 ships of over 10,000 teu are anticipated. Ishikawajima-Harima Heavy Industries has designed a 25-knot, 10,000 teu vessel using existing marine engines with a small and larger propeller on a single shaft. The ship would have a length of 346.6m, beam of 49.6m, and draught of 14.5m. Fuel consumption is estimated at around 240 tonnes per day. Other yards such as Germany’s HDW and Samsung in Korea have similar sized vessels on the drawing board. Maersk Sealand is understood to have plans for 11,000 teu ships, possibly for delivery between 2007-2009, with a length of 360m, beam of 42.3m, and draught of between 15.5-16.0m, with a service speed of 26 knots.

Container ships with a loading capacity of somewhere between 10,000-15,000 teu can be expected to enter service before 2010. Such vessels would be primarily designed to serve offshore transhipment mega-hubs, avoiding many physically constrained traditional liner ports.

3. Growth in World Trade and Containerisation
Growth in world trade has outstripped growth in global GDP. Figure 2 illustrates that global containerport demand has consistently increased more rapidly than output, on average by a factor of 3.2. In addition to direct, trade-related factors, containerport demand has also been boosted by the continuing containerisation of general cargoes in developing markets and of backhaul bulk cargoes in developed markets, as well as by the increasing use of transhipment.

Figure 2 also shows that growth in transhipment has been even more dynamic than general container growth. Over the 1991-2002 period, transhipment traffic expanded by an average of almost 14% per annum. Growth has been very steady over the period with the exception of 2001 when transhipment expanded by 6%, which was still almost three times world output growth for that particular year. (For further details download the pdf of A.Baird’s report, “Scapa Flow: Optimising the Container transhipment Hub location in northern Europe.”)

Figure 2: World economic, container and transhipment growth, 1993-2004 (Sources: Ocean Shipping Consultants, IMF)

3. Northern Europe and Transhipment

In northern Europe as a whole, the total volume of containerport traffic doubled over the 1992-2002 period, from 17.3 m teu to 34 m teu. Growth has occurred in every year over the period, with an average growth rate of 7.0%.

In 2001, 30% of traffic moving through the major north European hubs consisted of transhipment, equivalent to 7.5 m teu. Transhipment demand in North Europe is forecast to increase by between 69-90% to 11.38-12.78 m teu over 2001-10, and by a further 26-34% over 2010-15. Figure 3 charts the forecast rise in transhipment traffic in North Europe to 2015 (Ocean Shipping Consultants, World Container Outlook to 2015, Case 1 scenario assuming slightly less pessimistic economic growth rates). The most rapid growth is expected to be in the Eastern North Continent ports (Hamburg and Bremerhaven); expansion of transhipment traffic in this port region is forecast at 74-103% over 2001-10. Forecasts for 2015 suggest a total north European transhipment market of between 14.3-17.1 m teu.

Figure 3: North Europe forecast container transhipment by port range
to 2015, Case I (Source: Ocean Shipping Consultants)

Transhipment in northern Europe is thus forecast to almost triple between 2001-2015, from 6.72 m teu to 17.1 m teu, which appears much in line with previous rapid expansion of this sector of the market. Even under Ocean Shipping’s less optimistic Case II scenario, transhipment is forecast to more than double over the 2001-2015 period, from 6.72 m teu to 14.29 m teu. This essentially implies that transhipment is the most dynamic growth segment of the container shipping business.

4. Optimal Container Transhipment Location

Compared with competing hub ports serving the same region, the optimal container transhipment location must offer a combination of low mainline ship deviation cost, plus low average feedership cost. Based on these two measures, findings from the Baird study (available separately in pdf format) demonstrate that none of the existing hub terminals in northern Europe necessarily offers an optimal location from which to serve the main transhipment markets.

The new transhipment terminal envisaged for Scapa Flow in Orkney would offer a mainline ship deviation distance that compares favourably with the major established container ports in northern Europe. Hamburg, for example, one of Europe’s largest transhipment ports, involves a mainline ship deviation distance (and hence ship cost) almost twice that of Orkney (for an east-west pendulum or Round The World service).

In the case of UK/Ireland/Atlantic feeder markets, Orkney offers a combined mainline ship deviation plus average feedership distance of only 1,152 miles (for an Asia-Europe-USEC pendulum service) compared to the current average mainline + feeder distance via existing hubs of 1,691 miles. For these feeder markets the combined cost of mainline ship deviation (based on 7,000 teu ship size) plus feedership cost for Orkney is $67.04/teu compared to the current average cost via existing hubs of $90.24/teu.