Lack of Cargo to Fill ULCVs
As reported in Lloyd’s Loading List continuous orders for ultra large container vessels (ULCVs) reinforces the view that large and small carriers are determined to stay in the race for more competitive economics of scale even though cargo growth is unlikely to be enough to fill all of their new buildings over the next two years. It seems to be a case of ‘do or die’, with dying not an option because creditors would then never get any of their money back.
The trend means that the capacity of ULCVs over 10,000 TEU will increase by 31.4% this year, followed by a further 30% in 2015. Even though some of the deliveries will be delayed, it is hard to see where the cargo will come from, bearing in mind that the vessels are mostly designed for the Asia/Europe trade lane where west bound cargo growth last year was less than 4%. It was an even lower 2% to Northern Europe, where average vessel size already exceeds 10,500 TEU.
It is difficult to predict the number of vessels that can be delayed in order to alleviate the problem as much depends on the negotiating power of the buyers that have ordered them. Although only 34 of the 44 vessels over 10,000 TEU scheduled for delivery in 2013 actually came into service, 20 of which went into Asia/North Europe schedules, the ownership of the 60 vessels due out this year, followed by 68 in 2015, is completely different. Assuming all new buildings are delivered on time, smaller carrier’s share of vessels over 10,000 TEU (i.e. all excluding Maersk/MSC/CMA CGM) will grow from 45% in 2013 to 57% by the end of 2016 and their ability to postpone orders may not be the same as the top 03 carriers Maersk, MSC and CMA CGM.
As cargo growth in the Asia/Europe trade lane will be inadequate to accommodate the extra vessels, the implication is that some will have to be deployed in other trade lanes, but, when this happens, much of their economies of scale will be lost as ULCVs are only profitable when well utilised.
The indications are that CSCL, UASC and Evergreen may either join together in an alliance or join one of the other alliances in a more formal way. Existing alliances must also be considering further expansion of their global networks to help absorb the extra capacity over the next two years. Whilst anything is possible, thinking outside the box is what is required.
The stakes are high, as running empty ULCVs is costly, recently prompting Zim Line to again review its’ remaining orders for 4 x 8,800 TEU vessels, due for delivery in 2015 and 4 x 12,600 TEU vessels due for delivery in 2016. At present it is understood that both are in the process of being cancelled, with Zim Line preferring to take a lesser hit deposit fee, said to be around US$ 68 million for the latter alone.
Drewry believes that Asia/Europe freight rates will stay under pressure in 2014 and 2015, which explains why cost cutting is so high on Maersk/MSC/CMA CGM’s agenda. Meanwhile, according to Drewry, many 2014 west bound (to Europe) service contracts have been concluded at levels of between USD 300 and USD 700 per 40’ container, lower than last year.
Ultra Large Contain Terminal for Port Klang
A planned new container facility at Port Klang will offer 30 million TEUs of extra capacity.
A new port of such size would significantly up the competitive ante against rival operators at Tanjung Pelepas, Maersk’s South East Asia hub and PSA’s vast terminal complex at Singapore, as well as against the Malaysian hub’s existing box operators – Northport and Westport.
A feasibility study into the construction of the massive new third terminal at Port Klang is underway now and due to be completed next year. Deputy Transport Ministry, Abdul Aziz Kaprawi confirmed two sites were under consideration but did not comment on who would operate the facility.
In a separate development, Northport said it has now completed the expansion of one of its’ wharfs to enable it to handle the world’s largest container ships, adding some 600,000 TEUs of annual capacity in the process.
Shipping Lines Continue to Bleed
Between January and September 2013 CSAV recorded a turnover of USD 3.2 billion, a decline of 7% year-on-year. With 3% fewer containers down to 1.88 million TEU, this combines with 4% lower revenues per TEU. Its’ USD 4 million operating loss (gross margin) was however, substantially below that of 2012 and its’ net loss almost halved to USD 168 million.
After a difficult 2012, 2013 did not turn out much better for Bangkok based regional cargo and feeder operator Regional container Lines (RCL). Its’ turnover reduced by 2% year-on-year to 13.2 billion (USD 401 million), while at THB 1.6 million (USD 50 million), its’ net loss was slightly lower than that of a year before. Fourth quarter results do not give much hope for a fast recovery.
During 2013, Samudera Shipping Line’s turnover has reduced by a hefty 16.4% year-on-year to USD 391.2 million, resulting in a new group loss of USD 2.2 million, compared to a USD 4.2 million profit during the year before. The disappointing result is in particular due to strong competition in the regional trade, leading to a 10.1% reduction of carryings to 1.1 million TEU. Its’ domestic business (-6.5%) did not fare well either.
Hutchison Performance Not Encouraging
Last year, terminals in which Hutchison Port Holding (HPH) has a stake, including facilities operated by stock-listed Hutchison Port Trust (HPT), handled 78.3 million TEU (not weighted by ownership share), a growth rate of 2% year-on-year. In Europe throughput declined from 15.4 million TEU in 2012 to 15.1 million TEU last year.
Evergreen in Strategic U-turn
Evergreen is exploring ways of extending its’ co-operation with four other Asian container lines after confirming last week that it is to become a full member of the CKYH alliance in the Asia-Europe trades from next month.
The Taiwanese line will join Cosco Container Lines, Kline, Yang Ming and Hanjin Shipping, which have worked together for several years.
The decision is a U-turn for Evergreen, which until recently preferred to retain flexibility through loose knit arrangements with other lines and not to lock itself into a formal alliance.
That position changed, following the formation of major co-operative agreements that are changing the landscape of the global container shipping industry, such as the proposed P3 Network and extended G6 Alliance.
Having announced that it would now be part of the enlarged CKYHE Alliance, which plans to start operations from 1st April, Evergreen told Containerisation International that it was prepared to go further.
“In the future, we are seeking further co-operation either with individual members or to join the alliance in other markets such as north-south trades and regional feeder routes in order to enhance service frequency and widen geographic coverage”.
The decision to join the alliance follows other strategic shifts, with Evergreen now investing in 14,000TEU ships after years of focusing on nothing larger than 8,500 TEU.
Group Chairman Chang Yung-fa was reluctant to operate bigger ships that he argued could be hard to fill.
The Evergreen founder, who fought bitterly against the Far Eastern Freight conference when the Taiwanese outsider entered the Asia-Europe trades, now appears to have dropped his resistance, both to ultra large ships and to close partnerships.
PSA to Build JNPT 4th Container Terminal
Global port terminal operator PSA International has been selected to build and operate the long delayed 4th container terminal at Jawaharlal Nehru Port, India’s largest container hub, through a public-private partnership development scheme.
The Singapore based company won the 30 year concession after offering a revenue share of 35.79% from the planned 4.8 million TEU facilities. Domestic port developer Adani Ports and Special Economic Zone was the only other final bidder; it quoted a 29% royalty payment.
Plans for the build-operate-transfer project, estimated to cost USD 1.3 billion, comprise the construction of 2 km (about 1.2 miles) of quay, adequate container storage space and modern service equipment, allowing the terminal to handle deep draft ships.
The port authority awarded the same concession to PSA in September 2011, but the company failed to sign a concession agreement within the stipulated timeline, apparently because of differences with its’ local partner ABG Group. The consortium had offered a 50.8% share of revenue under the first tender, which was eventually scrapped in September 2012.
The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP)