Maritime Market Report – 16 of 2014

Lower Unit Cost Leads to Lower Rates

Service reliability in the container shipping business is set to improve as carriers with lower standards joining the big alliances will be forced to raise their quality of service delivery.  That is the belief of Chris Price, Agility CEO for Asia-Pacific, who told JOC.com in an exclusive interview that the homogenous product offering would compel carriers to develop new and better customer services to distinguish themselves from their partners.  “We expect service reliability to improve because the alliances comprise independent operational units managing vessel operations and that will force those with average standards to raise their service levels to match or exceed the more reliable carriers,” he said.  In terms of schedule reliability, the lines have little to speak about.  Average reliability across all carriers in the Asia-Europe trade has dropped from a high of 83% on-time port calls within 24 hours of the advertised date published before loading in mid 2012 to just 51% in the 01^st quarter of 2014, according to Drewry.  This adds to container dwell time, creating congestion and delays.  The trend toward the mega-alliances of 2M, G6 and CKYHE, and the independents joining forces (UASC and China Shipping), is commoditizing the container business and eroding options for shippers and forwarders.  “The similar products and vessel size offered by these carriers will result in limited choices for ship users.  If the sailing frequency is reduced as larger vessels are deployed, then shippers will have fewer sailing choices.  This will result in shippers having to put more containers on single sailings with higher risk exposure to supply chain interruptions.”   However, carriers had little choice in ordering larger vessels.  With freight rates falling on most trade lanes as excess capacity flooded into service, the shipping lines simply had to leverage economies of scale to survive.  The problem was, lower unit costs were leading to even lower rates.

Containerised Worldwide Trades – Growth Marginal

In the 01^st half of 2014, global full TEU volumes grew by 4.9% year-on-year to 65.2 million TEU, according to Container Trades Statistics.  Trade between the regions went up by 2.9% year-on-year to 46.4 million TEU.  As reflected below containerised export growth was not encouraging either.

(1,000 TEU)

Asia-Europe, Despite Freight Decline Rates Remain High

According to the latest Shanghai Containerised Freight Index (SCFI), freight rates between European and Asian ports fell 7.8% last week or USD 114 to USD 1,455 per TEU, although they remain well above the average rate this year for transporting a container between the two continents, which currently stands at USD 1,164 per TEU.  The SCFI also shows that rates to the Mediterranean also slipped last week, albeit nowhere near as drastically, by 0.3% to USD 1,608 per TEU.  In response to last week’s fall on Asia-Europe spot rates, Freight Investor Services broker Richard Ward said it was  little surprising, given the reported difficulties in securing space.  However, he also noted it had emerged earlier last week that a number of carriers, including K-Line, had postponed their August 1 GRI by a further week.  “Historically we have seen before that when a GRI is not implemented in unison, its’ success is thrown into doubt.  Although this time the increase has been partially implemented, the postponement from some carriers will certainly not have helped,” said Mr. Ward.   A number of shipping lines operating on the Asia-Europe trade did, however, announce further rate increases last week.  Hapag-Lloyd is pushing for a USD 650 increase from August 18, while NYK Line, Hyundai Merchant Marine and APL are seeking a hike of between USD 540 and USD 950 from September 1.  FFA rates on Asia-Europe routes for September are currently priced at around USD 1,350 said Mr. Ward.  Meanwhile, spot rates from Shanghai to both the West Coast and East Coast of the US remained relatively stable last week.

Port Productivity Up but More Needs to be Done

Terminal operators are responding to the tsunami of large vessels that have descended upon ports around the world by dramatically increasing their productivity in turning the mega-ships, the 2013 JOC Group’s Port Performance project has shown.  But the gains that were realized in 2013 compared to port and terminal performance in the 2012 survey are only a taste of what will be necessary when the next generation of vessels with capacities of 22,000 to 24,000 twenty foot container units arrive on the scene by 2018, said Industry Analysts Andrew Penfold and Dean Davison.  Penfold, Project Director of Ocean Shipping Consultants and Davison Principal Consultant at OCS, analyzed the second annual JOC Port Performance Statistics that were recently published for ports and terminals in the Americas, Europe and the Middle East.   Productivity as measured in the study is defined as total container moves per vessel per hour.  Ports and marine terminals around the world recorded significant gains in productivity, although the productivity of Asian and some Middle Eastern terminals greatly exceeded that of ports in the Americas and in Europe.  Shipping lines provided data for the project from 150,000 port calls at 483 ports and 771 container terminals.  The productivity range of the top 10 ports in the Americas in 2013 increased to 68 – 91 container moves per vessel per hour from 51 to 74 in the 2012 study.  Davison said.  The top ports in Europe and the Middle East in 2013 improved to 71 – 119 from 41 – 81 in 2012.  The top 10 Asian ports were all above 100 container moves per vessel per hour in 2013.  Their range was 104 – 130, compared with 73 – 96 in 2012.  Terminals in Yokohama Japan, for example, registered 163 moves per vessel per hour.  A number of factors contributed to the strong improvement in productivity in 2013 from 2012, Penfold said.  Ships are getting bigger.  Longer ships allow terminals to work more cranes against the vessel and this contributes to improved productivity, he said.

Now 20,000 TEU Ships

According to Ship2Shore, the owner of Monaco based non-operating vessel owner Scorpio is about to contract four 20,000 TEU ships (with options for another 04) from Samsung Heavy Industries.  It seems that the main reason for ordering vessels of this capacity, is to cover long term time charter agreements and also Scorpio managements desire to be remembered as a “man of records”.  Price is indicated to be around USD 190 million each.

Piracy/Armed Robbery against Ships Decline

In the first half of 2014, the International maritime Bureau (IMB) recorded 116 incidents of piracy and armed robbery against ships, in contrast to 138 incidents for the corresponding period of the previous year.  Ten ships were hijacked, seven fired upon, seventy-eight boarded and twenty-one vessels reported attempted attacks.  Two hundred crewmembers were taken hostage, five kidnapped and there were two fatalities.  The number of Somali pirate attacks remains relatively low, with just ten incidents reported, against twenty-three in West Africa and forty-seven in Indonesia.

Joint India/Bangladesh Coastal Services

 The Indian government, looking to capitalize on the growing importance of cross-border trade, has finalized plans to start coastal shipping services between ports in Bangladesh and key cargo terminals on India’s east coast.  “Discussions were held through diplomatic channels to formalize coastal shipping arrangements between the two countries over the last two years and a trial run is expected to be undertaken by October this year,” the government said in a statement.  The two sides are close to reaching an agreement on “standard operating procedures” for the proposed shipping route, it said.  Two-way trade between India and Bangladesh in fiscal year 2013-14, which ended in March, totalled USD 6.6 billion, with exports from India estimated to USD 6.1 billion.

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).