GDP Risk in Building Maritime Capacity
Some organizations use the growth of the GDP (Gross Domestic Product) as a benchmark to increase Shipboard-Port capacity. As reported in the Financial Times, in a private meeting with the US ambassador to China in 2007, provincial communist party secretary Li Keqiang described his country’s gross domestic product figures as “man made” and unreliable. To get a good idea of what was happening to the economy in his province of Liaoning, Mr Li said he preferred to focus on three alternative indicators: electricity consumption, volume of rail cargo and the amount of loans disbursed. All other figures and especially GDP statistics, were “for reference only”, Mr. Li told the ambassador, with a broad smile on his face. According to the latest numbers, the world’s second largest economy grew at its slowest pace since the first quarter of 2009, when growth was in freefall amid the global financial crisis. But many analysts still question whether Chinese GDP is really expanding at a year-on-year pace of 7.3%. The three indicators favoured by Mr. Li have become known in some circles as the “Keqiang index” and are watched very closely by economists trying to get a sense of what is really happening in the economy. In September, electricity consumption improved, rising 2.7% from the same month a year earlier. It was the second lowest reading in 18 months. Railway freight, the second of Mr. Li’s indicators, fell 6.2% from a year earlier in September. New renminbi loans rose more than expected but outstanding loan growth slowed to 13.2% from a year earlier in September, according to analysts at Nomura. These and other indicators suggest growth may not have been as strong as the GDP figures suggest.
Asian Transhipment Hubs under Pressure
Asian’s transhipment hubs are under increasing pressure to achieve a sustained level of productivity as mega vessels and the alliances drive up competition. Kicking off a panel on port productivity, Jonathan Beard, Vice President and Global Lead Ports and Logistics for ICF, said this is an issue in Asia and particularly at the transhipment pitch points. “Transhipment is footloose and required handling of the largest vessels and the wins and losses are substantial and the volumes of cargo that can switch with mega alliances can be very high,” he said. The key challenge for the port operators is to meet these increasing customer requirements without destroying the bottom line. “It is wonderful to throw eight of your newest cranes at the biggest vessel when it comes in, but it is not helpful if for the rest of the week those cranes lay idle.” This point was highlighted by Andy Lane, a partner at Container Transport International Consultancy, who said the average utilization of cranes is seldom above 60%. He said the world’s most productive port, Khorfakkan Container Terminal, made 179 moves an hour average on ships that were more than 8,000 TEUs, generating about 4,300 moves a day. “Maersk Line CEO Soren Skou wants to see 6,000 container moves per day, or 250 moves per hour. That means Khorfakkan Container Terminal would have to improve by 40% to match that number,” he said. “There needs to be some mindset changes because we have an abundance of redundant assets sitting there doing nothing and we are claiming port congestion and spending billions on building port capacity.” Better use of the cranes down time would address much of the capacity shortages, he said, while improving the productivity of ports. “ If you utilize your asset 75% of the time, spread the work out over the week and at 39 moves an hour, your cranes can produce 400,000 TEUs per year, mathematically, That is the maximum potential. “In terms of quay crane utilization, the average at nine of the top 10 ports in the world is 180,000 TEUs per year. So you have a potential gap of 119%. Closing that gap at an average of 6% a year will generate 35% extra capacity.
Record 2015 Ship Deliveries – Tough for Carriers
A record number of ship deliveries will combine with declining scrapping rates and mid-single digit growth in volume to extend the gap between container ship supply and demand through 2015. Global carriers next year will take delivery of a 1.8 million TEUs of capacity, representing 8% growth in supply over existing fleet capacity. That will outpace an expected 5.4% growth in demand, creating another year of rate pressure for global carriers that collectively have lost billions of dollars in four of the last five years. Underscoring the shift to ever larger container ships, 63 of the new vessels coming on line next year, representing 52% of the order book, will be capable of carrying more than 10,000 20 foot equivalent units and 53 of those vessels will be larger than 13,300 TEUs. The 2015 deliveries will lead to a significant cascading impact next year that will further shake up the North-South and intra-Asia trades. To put the order book in context, the scale of which three carriers are expanding:
- Mediterranean Shipping Co., the world’s 2nd largest operator by fleet capacity with more than 2.5 million TEUs, will take on 350,000 TEUs of new capacity next year, more than the current fleet of Chilean carriers CSAV and CCNI combined.
- CMA CGM, the 3rd largest global carrier, will take delivery of ships totalling 242,000 TEUs in 2015, equal to CSAV’s existing fleet.’
- United Arab Shipping Co.’s 2015 order book of 188,000 TEUs will double the Dubai based carriers’ existing fleet capacity on the Asia-Europe and Asia-North America trades.
Asian Middle class Growth Positive for Shipping
Growth expectations for the Asian middle class are staggering, but so is the scale of supply chain upgrades that will be needed to meet demand. By 2030, there will be 2.7 billion new Asian middle class consumers, accounting for 90% of global middle class growth, said Steve Saxon a partner at McKinsey & Company a consulting firm. Those consumers with more disposable income will drive consumption by USD 30 trillion. The pace of the rise has also been impressive, with average income per person in China doubling in 12 years, compared to the 53 years it took in the US and 154 year in England. Unsurprisingly, the majority of middle class growth will be in cities. Of the 440 cities that will fuel nearly half of middle class GDP growth through 2025, more than 300 are in Asia. All this will place tremendous pressure on Logistics Service Providers.
Schedule Changes Worry Shippers
From July through September, there were roughly 22.5 million global sailing schedule changes on more than 1.3 million schedules from 20 carriers, underscoring the challenges of shipment planning, according to a new report from CargoSmart. “Frequent sailing schedule changes can make it challenging for shippers to prepare export filings before cargo has departed and adjust cargo pickup arrangements at the final destination,” the Hong Kong based logistics software firm said in its October issue. Of the 22.5 million schedule changes in the past three months, 57% occurred at Asian ports, 18% at European ports and 12% at North American ports, according to the report. Shippers and logistics service providers face frequent sailing schedule changes as a result of increased service changes, shifting port coverage, vessel diversions and slow-steaming to conserve fuel, CargoSmart said. A schedule change qualifies as a change in the estimated time of departure or estimated time of arrival in an ocean carrier’s schedule. The report also showed that the proportion of schedule changes for each region was about the same over the last three months, although total schedule changes increased in August and decreased in September. In Asia, the ports with the most schedule changes included Singapore, Shanghai and Hong Kong. The schedule changes at the Port of Singapore reached more that 7% of the total schedule changes in Asia, as the average number of changes per schedule was 14 times. Singapore, the world’s largest transhipment port and No. 2 on the JOC’s Top 50 Global container Ports ranking, reported that its container volume was up 3.4% year-to-year through August, compared to the same period last year. Big ships and the prospect of even larger vessels on the horizon, have been a challenge to productivity in Singapore. As a result, the Maritime and Port Authority of Singapore and PSA Corp, agreed to spend USD 24 million to develop next generation technology that will help terminal operations in the future. In Europe, the ports with the most schedule changes included Rotterdam, the Netherlands, Hamburg, Germany and Le Havre France according to CargoSmart. The schedule changes at Rotterdam were 20% of the total schedule changes in Europe, with the average number of changes per schedule at 21.3 times. Rotterdam, Europe’s largest container hub saw severe congestion this summer following a surge in the number of mega container ships calling at the port, which resulted in greater volume peaks that strained terminal capacity.
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).