Informa Ci 201404

www.containershipping.
com APRIL 2014

Data Hub: Load Factors ..............................08
Data Hub: World Fleet Update ...............10
Trade Routes: Transpacic ........................16
TT Club Column: Liability risk .................50
MAERSK LINE:
HOW IT ACHIEVED
ITS 2013 RESULT
P32
LOGISTICS
EXCLUSIVE: THE
LOGISTICS OF THE UK
MILITARY WITHDRAWAL
P34
CARRIERS
TRANSPACIFIC: LOW
TAKEUP OF MULTI
YEAR CONTRACTS
P25
MORE INSIGHT CARRIERS
FORWARD
THINKING
CHIEF EXECUTIVE
PANALPINA
THE
PETER ULBER
INTERVIEW
Port Metro Vancouver is already
close to Asian markets. And with
unprecedented infrastructure
investment in our gateway, were
getting even closer.
Were building land-side projects
that boost rail and road efciency.
Were increasing our container
terminal capacity and reducing on-
dock dwell through collaboration
with supply chain partners. And
were operating with longshore
labour certainty to 2018.
As a result, weve taken up to
3 days out of your supply chain.
That brings your goods closer
to market and you closer to
your customers.
Fold to
Fold to
VANCOUVER
SHANGHAI
DALIAN
KAOHSI UNG
SHENZHEN
HONG KONG
TOKYO
YOKOHAMA
BUSAN
is better. Closer
April 2014
CONTAINERISATION International was first published in 1967,
six years before AP Moller-Maersk entered the container
shipping trades. Maersk was a latecomer to this sector of the
industry which had started to emerge in the late 1950s.
The legendary Maersk Mc-Kinney Moller was only finally
persuaded to join the box trades in the early 1970s. The first
containership to carry the Maersk Line brand name was the
1,800 teu Svendborg Maersk, delivered in January 1974.
The actual decsion to set up a container line had been taken
in February 1973 when the partners, led by Mr Moller, agreed
that Maersk Line should develop a largescale, door-to-door
full container service that will replace the present services
operating between the US/Canada and the Far East.
Maersk Lines extraordinary ascent over the next 40 years
into the worlds largest containership operator is charted in
a new book: Creating Global Opportunities Maersk Line in
Containerisation 1973-2013.
The book, due to be officially launched in early May,
documents not just Maersk Lines rise to the top, but the
economic backdrop against which a shipowner from a small
north European country took on the world.
And in chapter after chapter, Containerisation International is
cited as the source of industry facts, figures and commentary.
Former editors Jane Boyes and John Fossey are also quoted on
numerous occasions throughout the 442-page study by Chris
Jephson and Henning Morgan.
Containerisation International has been one of the most
valuable resources for those working in, analysing, or writing
about the industry, ever since the monthly magazine first came
out nearly 50 years ago. An earlier editor, Richard Gibney, coined
the phrase twenty foot equivalent unit or teu one of the few
genuinely global standards despite being an imperial measure.
Jane Boyes retired a few years ago and John Fossey was
succeeded in 2012 by former Lloyds List ports and logistics
Editor-in-chief Containers Janet Porter
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Editor Damian Brett
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Times may change, but Containerisation
International remains at the forefront
INTRODUCING OUR
NEW EDITOR
editor Roger Hailey, who guided the publication through some
challenging times. Roger has now decided to move on to an
air cargo publication but promises to write the occasional
article for us on the relative merits of air and ocean freight.
In his place, I am delighted to announce that Damian
Brett, who joined the editorial team a year ago, has been
appointed editor. Damian has shown that he has a very good
understanding of all aspects of the container industry, and also
recognises the need to keep adapting the way we deliver news,
data, analysis and insight to subscribers in this digital age.
Incidentally, in this issue, Damian talks to Maersk Line chief
executive Sren Skou about how the line managed to produce
such strong results in 2013 when most other box lines remained
in the red.
Like Maersk, Containerisation International may now be a
well-established industry fixture, but the only way to remain
either the worlds leading container line, or the bible of the
container shipping world, is to be flexible and forward-thinking.
Our new editorial team will be just that.
Janet Porter, editor-in-chief containers
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APRIL 2014
www.containershipping.com CONTAINERISATION INTERNATIONAL 01
April 2014
STRIKING A DEAL
Tough talking as US employers remain
condent of striking labour agreement
P22
LOW TAKEUP FOR
MULTIYEAR DEALS
Transpacic service agreements are being
renegotiated, but why do so few extend
beyond 12 months?
P25
MOVING FORWARD
Panalpina chief executive Peter Ulber on
his companys plans to expand its sea
freight business
P26
LA TAKES ACTION
$1bn investment programme proves
commitment to the port
P30
DATA HUB
TRADE STATISTICS
Positive trade performance on European
routes is not being matched by positive
utilisation rates
P04
DATA HUB
LOAD FACTORS
Looking at the likely vessel utilisation rates
for the key European trade lanes
P08
DATA HUB
WORLD FLEET UPDATE
Panamaxes still facing peril, but delayed
Panama Canal reopening may oer some
respite
P10
FREIGHT RATE
INDICATORS
More of the same for 2014 as overall spot
rates on major trade lanes from Asia are in
line with last years levels
P14
14
I dont think there is
a shipper or forwarder
out there who does not
believe in the need for
larger vessels
CARRIERS
DATA HUB
DATA HUB PORTS
CARRIERS
PORTS
TRADE ROUTE
INTELLIIGENCE
Managing greater expectations on the
transpacic trade lane
P16
CHOICE WIDENS FOR
US SHIPPERS
The soon-to-be-enlarged Panama Canal
is not the only option for those looking to
move cargo to the US heartlands
P19
VIEW FROM THE BRIDGE
02 CONTAINERISATION INTERNATIONAL www.containershipping.com
CONTENTS / APRIL 2014
P26
PETER ULBER
VIEW FROM THE BRIDGE
April 2014
LONG BEACH READY
FOR CARGO FIGHT
Port goes toe-to-toe with rival Los Angeles
and attempts to put upheaval behind it
P31
HOW DID THEY DO
THAT?
Maersk Lines Sren Skou on how the
company managed another year of prot
growth in di cult circumstances
P32
LOGISTICAL
BATTLEGROUND
An EXCLUSIVE report from Ian Aitchison on
the UK military withdrawal from Afghanistan
P34
RUSSIAS GROWTH
Container volume growth slowed last year
but is still above the global average
P48
LIABILITY RISKS
Andrew Kemp of the TT Club outlines
additional liabilities being undertaken by
freight forwarders
P50
FREIGHT RATES
Richard Ward of FIS says cutting costs is
only half the battle for protability
P51
BARGING IN
Waalhaven Groups various services mean
it faces a wide range of challenges
P52
PORTS
GUEST COLUMNISTS
SEARCHING FOR THE
KEY TO SUCCESS
Alastair Hill takes a look at the winners and
losers in the 2013 results announcements
P40
CHANGING LANES
Freight forwarder growth is in line with
the market, but 2013 results mark strategy
changes for the big players
P43
NEWS ROUNDUP
FMC clears P3 alliance
P45
Latest carrier results
P46
Hapag-Lloyd/CSAV merger edges closer
P47
CARRIERS
LOGISTICS
BOX WORLD BRIEFING
CARRIERS
FORWARDERS
PORTS
LOGISTICS
ISSUE 3/VOL 47
04 CONTAINERISATION INTERNATIONAL www.containershipping.com April 2014
DATA HUB
TRADE STATISTICS
SUPPLY/DEMAND INDICATORS
FOR CONTAINER SHIPPING
DATA PROVIDED BY:
BASED on the actual results for the fourth
quarter of 2013, MDST estimates that exports
from Asia (excluding intra-regional trade) have
grown by a remarkable 8.3% in the fourth
quarter of 2013, compared with the same
quarter a year ago, reaching almost 11.7m teu.
The positive performance witnessed in the
last three months of 2013 can be explained
by the early Chinese New Year. Usually the
holiday is accompanied by the pressure of
moving cargo before the factory closure for
the holiday season; this year this pressure
was worsened by the fear of incurring delays
as experienced by shippers last year.
With an increase of some 8%, exports to
North America registered the highest growth
between the fourth quarter of 2012 and the
fourth quarter of 2013. Positive results are also
estimated for the other dominant corridor, Asia
to North Europe, where MDST estimates an
increase of 6% during the same period.
As a consequence, at a global level MDST
estimates that excluding intra-regional trade
total loaded maritime volume will have
grown by almost 7% during the fourth quarter
of 2013, compared with the same quarter the
previous year (+4.5% comparing the full-year
results in 2013 with full year 2012).
Similar results for 2013 have been
announced by Maersk Line; in its annual report,
the shipping line indicated an annual growth of
3.5% in the global market for containers.
The positive performances in trade data,
however, have not been accompanied by
positive performance on the shipping lines
utilisation levels.
SUPPLY AND DEMAND
GAP PERSISTS
North America to north Europe North America to Mediterranean
Leading indicators: headhaul from north Europe 000 teu. Italics = projected
Commodity 2012 2013 2014 2015
11 Beverages 188 184 189 193
78 Road Vehicles 174 175 186 195
89 Miscellaneous Manufactures 169 190 204 216
74 General Industrial Machinery 163 156 148 155
62 Rubber Manufactures 129 136 135 153
Overall headhaul index 100 105 110 117
Overall backhaul index 100 103 107 113
Leading indicators: headhaul from Mediterranean 000 teu. Italics = projected
Commodity 2012 2013 2014 2015
66 Mineral Manufactures 118 140 151 164
82 Furniture 57 65 73 76
11 Beverages 51 52 46 49
05 Vegetables & Fruit, Nuts 50 52 58 60
North America to north Europe (000 teu) North America to Mediterranean (000 teu)
1,758 904
2,478 1,083
1,809
2.9%
948
4.9%
2,592
4.6%
1,175
8.5%
1,877
3.8%
879
-7.3%
2,727
5.2%
1,221
3.9%
1,993
6.2%
958
9%
2,910
6.7%
1,301
6.6%
2012 2012 2013 2013 2014 2014 2015 2015
North Europe to North America (000 teu)
North Europe includes northern Europe, Scandinavia and the Baltic
Mediterranean to North America (000 teu)
Mediterranean includes North Africa and the Black Sea
Underlying westbound trade grew by 3% in 2013 and is expected
to growth by some 4% in 2014.
Underlying eastbound trade grew by 4.6% in 2013 and is expected
to grow by 5% in 2014.
Of the leading headhaul commodities, road vehicles and misc.
manufactures show most growth.
Annual headhaul growth from 2013 to 2017 is forecast at +5%.
Service capacity westbound in the fourth quarter of 2013 is
estimated to be 6% above the fourth quarter of 2012.
Y-o-Y in the fourth quarter of 2013, freight rates and profits are estimated
to have increased and utilisation level is estimated to have fallen.
Underlying westbound trade grew by 8.5% in 2013 and is
expected to grow by 4% in 2014.
Underlying eastbound trade grew by 5% in 2013 and is expected
to fall by 7% in 2014.
Of the leading headhaul commodities, mineral manufactures shows
most growth.
Service capacity westbound in the fourth quarter of 2013 is
Y-o-Y in the fourth quarter of 2013, freight rates, estimated
utilisation and profit are estimated to have decreased.
2012
2012
2013
2013
2014
2014
2015
2015
Positive trade performance not accompanied by positive utilisation performance
For example, Maersk Line reported that in 2013, global nominal capacity has
grown by some 8.4% year on year. Slow-steaming and scrapping have made a
small contribution towards a reduction in the gap between supply and demand.
MDST estimates that the persisting gap between supply and demand is likely to
further weaken rates, as shown in graph A, which shows that the gap in the fourth
quarter of 2013 is estimated to have reached a level of 24 points down from 21 in
the previous quarter (2006 Q1 = 100).
As more larger ships come on-stream it is inevitable that rates will remain
depressed. However, the economies of scale these new ships offer in terms of
fuel economy are so powerful that they will be able to ride out the inevitable
depression in rates over the short term. This has been clearly demonstrated in
Maersk Line results for 2013, which showed increasing profitability despite falling
mean rates.
For this edition, MDST has observed the European trade lanes, reporting an
increase of some 3% in deep-sea import volumes to north Europe and the
Mediterranean during the fourth quarter of 2013 compared with the same quarter
in the previous year (with a decrease of circa 1% for the fourth quarter of 2013
compared to the previous quarter).
Trade from north Europe to America is projected to grow by 5% by the end of
2014 and it is forecast to continue to grow at 4% per year from 2014 to 2017.
Specialised machinery grew but general industrial machinery and beverages fell,
North Europe to Mid-East Gulf & Indian subcontinent Mediterranean to Mid-East Gulf & Indian subcontinent
North Europe to Mid-East Gulf & Indian subcontinent (000 teu)
Mediterranean to Mid-East Gulf & Indian subcontinent (000 teu)
Mediterranean includes North Africa and the Black Sea
1,469
1,655
1,041 986
1,435
-2.3%
1,817
9.8%
1,080
3.7%
1,114
13%
1,473
2.6%
1,955
7.6%
1,133
4.9%
1,226
10.1%
1,600
8.6%
2,109
7.9%
1,214
7.1%
1,300
6%
2012
2012
2013
2013
2014
2014
2015
2015
Mid-East Gulf & Indian subcontinent to north Europe (000 teu)
Mid-East Gulf & Indian subcontinent includes Gulf states, India, Pakistan, Sri Lanka & Bangladesh
Mid-East Gulf & Indian subcontinent to Mediterranean (000 teu)
Mid-East Gulf & Indian subcontinent includes Gulf states, India, Pakistan, Sri Lanka & Bangladesh
Underlying eastbound trade fell by 2% in 2013 but is expected to
grow by 3% in 2014.
Underlying westbound trade grew by 4% in 2013 and is expected to
grow by 5% in 2014.
Of the leading headhaul commodities, food and paper show the most
growth.
Annual headhaul growth from 2013 to 2017 is forecast to be +6%.
Service capacity eastbound in the fourth quarter of 2013 is
estimated to be 18% below the same quarter previous year.
Y-o-Y in the fourth quarter of 2013, estimated utilisation and freight rates
are estimated to have decreased and profits is estimated to have improved.
Underlying eastbound trade grew by almost 10% in 2013 and is
expected to grow by 8% in 2014.
Underlying westbound trade has been growing by 13% in 2013 and
is expected to grow by 10% in 2014.
Of the leading headhaul commodities, mineral manufactures, animal
feeds and fruit & veg show the most growth.
Service capacity eastbound in the fourth quarter of 2013 is
Y-o-Y in the fourth quarter of 2013, estimated utilisation, freight
rates and profits are estimated to have decreased.
2012 2012 2013 2013 2014 2014 2015 2015
* Excludes intra-regional trade. ** Forecast. On the basis of trade data available in mid-
August, the consultancy projects the following changes in underlying demand along the main
trade lanes for loaded containers for the forthcoming 12 months (4Q 2013 3Q 2014 as
compared with the previous 12 months). For explanatory notes that define how data has been
organised please see www.boxtradeintelligence.co.uk.
2011-
2012
2012-
2013
2013-
2014**
North America to Europe -6% +4% 0%
North America to Asia +5% +8% +11%
Asia to Europe -3% +3% +11%
Asia to North America +6% +5% +6%
Europe to Asia +1% +2% +2%
Europe to North America +6% +6% +5%
North America exports * +2% +5% +6%
North America imports * +6% +4% +5%
Asia Exports * +3% +5% +9%
Asia Imports * +7% +5% +8%
Europe & Med Exports * +5% +4% +4%
Europe & Med Imports * -2% +3% +7%
Intra Asia +6% +4% +8%
Intra Europe +4% +6% +4%
Global overview +5% +5% +7%
Leading indicators: headhaul from north Europe 000 teu. Italics = projected
Commodity 2012 2013 2014 2015
64 Paper & Paperboard 105 104 103 111
09 Miscellaneous Food Products 66 70 70 77
77 Electrical Machinery 60 55 58 63
28 Ores & Scrap 55 48 32 37
Leading indicators: headhaul from Mediterranean 000 teu. Italics = projected
Commodity 2012 2013 2014 2015
08 Animal Feedingstuffs 286 325 281 353
27 Crude Fertilisers & Minerals 99 98 108 110
Underlying unitised trade growth rates (year on year)
www.containershipping.com CONTAINERISATION INTERNATIONAL 05 April 2014
DATA HUB
TRADE STATISTICS
DATA HUB
TRADE STATISTICS
while traffic in the eastbound direction increased by 5%. Trade from
the Mediterranean to North America is projected to grow by almost
4% by the end of 2014, with all leading commodities rising. Growth
from 2014 to 2017 is forecast at 5% per year. Eastbound traffic is
expected to decline by some 7% in 2014.
Trade from northern Europe to the Gulf and Indian subcontinent
is projected to grow by 2.6% by the end of 2014, with paper and
paperboard and food products bucking the trend, and is forecast to
grow at the rate of 7% per year from 2014 to 2017.
Trade from the Mediterranean to the Gulf and Indian subcontinent
is projected to grow by 7.6% by the end of 2014, being led by animal
feeding-stuffs and mineral manufactures. It is forecast to grow at the
rate of 6% per year from 2014 to 2017.
Trade from northern Europe to east and southern Africa is
projected not to grow in 2014, but it is forecast to grow by 8% per
year from 2014 to 2017.
Trade from northern Europe to Australasia is projected to grow
by 2% by the end of 2014, being led by electrical machinery. It is
forecast to grow by 6% per year from 2014 to 2017.
North Europe to East & South Africa North Europe to Austalasia & Oceania
North Europe to E&S Africa (000 teu)
North Europe to Australia & Oceania (000 teu)
North Europe includes northern Europe, Scandanavia and the Baltic
331
358
310 150
334
0.9%
354
-1.1%
290
-6.5%
136
-9.3%
334
0%
362
2.3%
275
-5.2%
114
-16.2%
371
11.1%
391
8%
302
9.8%
123
7.9%
2012 2012 2013 2013 2014 2014 2015 2015
E&S Africa to north Europe (000 teu)
East and South Africa includes East African countries and their hinterland
Australasia & Oceania to North Europe (000 teu)
Australasia & Oceania includes Australia, New Zealand and Pacific Islands
Overall southbound trade grew by 1% in 2013 and is expected to
be flat in 2014.
Underlying northbound trade fell by 6.5% in 2013 and is expected
to fall 5% in 2014.
Of the leading headhaul commodities none show consistent
growth.
Annual headhaul growth from 2013 to 2017 is forecast
at +6%.
Service capacity southbound in the fourth quarter of 2013 is
estimated to be 9% below the fourth quarter of 2012.
Y-o-Y in the fourth quarter of 2013, estimated utilisation, freight
rates and profits are estimated to have decreased.
Overall southbound trade fell by 1% in 2013 and is expected to
grow by 2% in 2013.
Underlying northbound trade fell by 9% in 2013 and is expected
to fall by16% in 2014.
Of the leading headhaul commodities, road vehicles, misc
manufactures and paper show consistency.
Service capacity southbound in the fourth quarter of 2013 is
estimated to be 8% below the fourth quarter of 2012.
Y-o-Y in the fourth quarter of 2013, estimated utilisation is
estimated to have remained stable, freight rates and profits are
estimated to have decreased.
2012
2012
2013
2013
2014
2014
2015
2015
This data is provided by Box Trade Intelligence in collaboration with MDS Transmodal.
Much more detail is available directly from BTI (www.boxtradeintelligence.co.uk),
including tonnages and estimated teu at the country x country x 3,000 commodities level,
individual ship deployment and estimated revenue, profit, rates and utilisation at the
tradelane and individual ship level.
Leading indicators: headhaul from N Europe 000 teu. Italics = projected
Commodity 2012 2013 2014 2015
08 Animal Feedingstuffs 286 325 281 353
27 Crude Fertilisers & Minerals 99 98 108 110
Leading indicators: headhaul from N Europe 000 teu. Italics = projected
Commodity 2012 2013 2014 2015
72 Specialised Machinery 28 19 19 20
78 Road Vehicles 23 22 20 22
64 Paper & Paperboard 20 21 18 19
77 Electrical Machinery 17 16 14 15
Supply - based on actual data Demand - based on actual data
Demand seasonally adj
60
80
100
120
140
160
180
2
0
0
6
Q
1
2
0
0
6
Q
2
2
0
0
6
Q
3
2
0
0
6
Q
4
2
0
0
7
Q
1
2
0
0
7
Q
2
2
0
0
7
Q
3
2
0
0
7
Q
4
2
0
0
8
Q
1
2
0
0
8
Q
2
2
0
0
8
Q
3
2
0
0
8
Q
4
2
0
0
9
Q
1
2
0
0
9
Q
2
2
0
0
9
Q
3
2
0
0
9
Q
4
2
0
1
0
Q
1
2
0
1
0
Q
2
2
0
1
0
Q
3
2
0
1
0
Q
4
2
0
1
1
Q
1
2
0
1
1
Q
2
2
0
1
1
Q
3
2
0
1
1
Q
4
2
0
1
2
Q
1
2
0
1
2
Q
2
2
0
1
2
Q
3
2
0
1
2
Q
4
2
0
1
3
Q
1
2
0
1
3
Q
2
2013 Q4
Supply Index=169
2012 Q4 - 2013 Q4
% change quarter on quarter
Supply=4.5%
Demand=7%
2013 Q4
Demand Index=146
2
0
1
3
Q
3
Graph A: Global supply v demand and seasonally adjusted
demand index 2006 (Q1=100)
April 2014 8 CONTAINERISATION INTERNATIONAL www.containershipping.com
DATA HUB
LOAD FACTORS
THE ACE OF TRADES
Damian Brett takes a look at the likely impact of supply and demand on some of the
key European trade lanes
Europe to Middle East Gulf & Indian subcontinent
Load factors on services from Europe to the Middle East Gulf
and Indian subcontinent are expected to perform well
this year, staying above the 84% mark in three of the four
quarters.
These utilisation levels are down to expectations for strong cargo
growth in 2014, with MDS Transmodal expecting volumes to reach more
than 3.5m teu, an
increase of 8.4%
over the year.
Utilisation
levels will be
roughly in line
with last year, as
volume growth
is matched
by capacity
additions,
measuring 8.2%.
3
Northern Europe to east coast of South America
This year is set
to be a mixed
one for vessel
load factors
on services
from northern
Europe to South
America, with
improvements
compared with
2013 being
chipped away
through the addition of larger vessels.
Volumes are set to continue to grow at a decent clip, with
analysts projecting increases of around 6% in 2014. Meanwhile,
our projections show that first-quarter capacity actually decreased
compared with the January-March period of last year.
But carriers have been busy adding ships to services as the
quarter progressed Hamburg Sd has opted to deploy new
9,700 teu ships in its Brazil/River Plate-North Europe loop and
Mediterranean Shipping Co also filled a gap in its Samex schedule.
The effect has been to boost capacity by an estimated 7.7% at
the start of the second quarter compared with the start of the first
quarter.
This trend is expected to continue as the year progresses and
utilisation levels for the peak season will be below last years levels.
As well as being below last year, load factors will also fail to
breach the 80% mark meaning it could be a tough year for shipping
lines.
1
East coast of South America to northern Europe
As with all trade lanes, capacity deployment decisions are mostly
based on expectations for the headhaul direction and unfortunately
for services from South America to north Europe, carriers are adding
large amounts of capacity on this trade lane on the back of 6%
volume growth in the opposite direction.
Sometimes this is mitigated by strong demand growth in the
backhaul direction, but analysts are expecting volumes to increase
by the lesser
amount of 2%
on services from
South America.
As a result,
load factors are
expected to be
weak and also
below last years
levels, peaking at
75% in the fourth
quarter.
2
2
1
4
East coast South America to northern Europe:
average vessel utilisation
0
20%
40%
60%
80%
100%
Q1
15
Q4
14
Q3
14
Q2
14
Q1
14
Q4
13
Q3
13
Q2
13
Q1
13
Northern Europe to east coast South America:
0
20%
40%
60%
80%
100%
Q1
15
Q4
14
Q3
14
Q2
14
Q1
14
Q4
13
Q3
13
Q2
13
Q1
13
Europe to Middle East Gulf & Indian subcontinent:
0
20%
40%
60%
80%
100%
Q1
15
Q4
14
Q3
14
Q2
14
Q1
14
Q4
13
Q3
13
Q2
13
Q1
13
April 2014 www.containershipping.com CONTAINERISATION INTERNATIONAL 9
6
OUR METHODOLOGY: The freight rate forecasts shown in the tables are mainly based on projections of estimated average vessel utilisation in each trade lane, combined
with other relevant circumstances. The fuller the ship, the more likely rates will rise and vice versa. Cargo forecasts are based on the latest information from all sources available to
Containerisation Internationals editorial team. These will always be conservative, and only take account of normal seasonal variations. Fleet capacity information is derived from
Lloyds List Intelligence. Current shipboard capacity in each route is estimated by deducting space lost for broken stows and wayport cargo from the operating capacity offered on
every vessel in that tradelane. This is projected forward by estimating where newbuildings are likely to be deployed, as well as where replaced vessels are likely to be cascaded into.
Average vessel utilisation is simply one divided by the other. It should be noted, therefore, that the resulting freight rate trends only reflect what should theoretically happen if ocean
carriers continue acting according to form. They do not take into account dramatic changes in strategy, such as mass lay-ups, service consolidation and more hub and spoke operations.
Middle East Gulf & Indian subcontinent to Europe
Load factors on
vessels from
the Middle
East and Indian
subcontinent
are expected to
peak at 83% in
the first three
months and
80% in the third
quarter.
These levels
should be enough for carriers to at least maintain freight rates at
the previous quarters levels. Bearing in mind this is the backhaul
trade, these are decent figures.
Load factors for 2014 are also better than last year as volumes
are expected to surge by as much as 10%.
On the capacity front, larger ships were deployed in Maersk
Lines dedicated loops, ME2 and ME3. The G6 Alliances wayport
calling loops, 6 and 7, and MSCs Falcon loop also saw larger
tonnage, while gaps in some other services were filled.
For the full year, capacity is expected to increase by just
over 8%.
4
DATA HUB
FREIGHT FORECASTER
NEXT EDITION: AMERICAS
DATA HUB
LOAD FACTORS
Asia to northern Europe
EMERGING data
from Container
Trades Statistics
shows that the year
started strongly,
with January Asia
to Europe volumes
increasing by 8%
compared with the
same month in 2013.
This is partly
explained by an
earlier-than-usual 2013 Chinese New Year, forcing shippers to rush
cargo out of Asia before factories closed for the holiday.
For the full year, analysts are expecting demand on the trade lane to
grow by around 4-5% this year, following on from 2% in 2013.
Apart from the two weeks immediately after Chinese New Year, the
number of gaps left in schedules through carriers temporarily pulling
out ships was considerably less than occurred at the same point in the
last two years.
These gaps aside, larger vessels on G6 loops six and seven, and
Maersk Line loops AE2, 7 and 10, resulted in capacity growth of 1.8%
between the start of the first and second quarter.
For the full year, capacity is expected to increase year on year
slightly above demand, but roughly speaking load factors will be in line
with 2013. Utilisation rates will peak at 92% in the third quarter.
Under normal circumstances, these load factors would put the
shipping lines in a strong position, but as discussed previously, the
Asia-Europe trade generally requires slightly higher than normal load
factors before it becomes a sellers market.
6
Asia to the Mediterranean
Services from
Asia to the
Mediterranean are
also set for a good
year in terms of
utilisation levels
as demand growth
is expected to
outstrip capacity
additions.
The region
is continuing to
recover from the effects of the Mediterranean financial crisis and the
Arab spring. Therefore volumes are growing strongly each year.
According to CTS data, liftings jumped by 8.3% year on year in
2013 to 5.3m teu. For 2014, analysts are expecting another increase
of around 6%.
Meanwhile, carriers are being careful with additions and our
projections show year-on-year growth in capacity of around 2.4% for
2014.
This careful approach can be seen in the small 0.6% addition in
capacity between the start of the first and second quarters. All this
means strong vessel utilisation levels for the year, reaching as high as
95% in the second quarter.
5
5
3
0
20%
40%
60%
80%
100%
Q1
15
Q4
14
Q3
14
Q2
14
Q1
14
Q4
13
Q3
13
Q2
13
Q1
13
Asia to northern Europe: average utilisation rates
Asia to Mediterranean: average vessel utilisation
0
20%
40%
60%
80%
100%
Q1
15
Q4
14
Q3
14
Q2
14
Q1
14
Q4
13
Q3
13
Q2
13
Q1
13
Middle East Gulf & Indian subcontinent to Europe:
0
20%
40%
60%
80%
100%
Q1
15
Q4
14
Q3
14
Q2
14
Q1
14
Q4
13
Q3
13
Q2
13
Q1
13
KEY: Green (84% and above): Carriers should be able to protect rates or even improve prices, unless the market has hit the top or sentiment dictates otherwise. Grey (80%-83%):
Freight rates should be fairly steady compared with the previous quarter unless market sentiment dictates otherwise. Red (79% and below): Carriers are likely to have a tough time
improving rates and prices could well decline compared with the previous quarter, unless the market has hit the bottom or sentiment dictates otherwise.
PANAMAXES IN PERIL
Delayed canal opening may help, but scrapping is still the best option, reports James Baker
Teu Size range In service March 2014 On Order 2014 On Order 2015 On Order 2016+ Total vessels
on order
Total teu
on order*
No Teu No Teu No Teu No Teu
0-499 343 95,741 2 251 2 210 - - 4 510
500-999 730 551,049 7 5,597 1 606 1 540 9 6,743
1,000-2,999 1,859 3,368,147 57 96,390 63 123,750 11 23,352 131 243,492
3,000-4,999 926 3,831,047 32 137,080 10 38,200 9 34,600 51 209,880
5,000-7,499 617 3,719,943 29 162,550 10 62,200 - - 39 224,750
7,500-9,999 340 2,916,643 40 355,431 61 551,214 24 221,762 125 1,128,407
10,000-12,999 69 769,132 15 157,686 13 134,362 5 50,000 33 342,048
13,000-15,999 134 1,816,658 17 228,816 22 309,850 13 184,500 52 723,166
16,000+ 9 157,680 12 215,490 31 556,910 1 18,800 44 791,200
Total 5,027 17,226,040 211 1,359,291 213 1,777,302 64 533,554 488 3,670,196
World Cellular Fleet March 2014 (excluding newbuild postponements and cancellations under negotiation)
Delays to the completion of the Panama Canal
could bring respite to the panamax sector.
THE number of ships on
the water in the global fleet
dropped minutely again last
month as four more ships went
to scrap than entered the fleet.
However, total capacity
keeps on climbing as larger
ships take over from smaller
ones: another 81,000 teu of
capacity joined the fleet in
March.
In practical terms that
capacity equates to another
four and a half 17,700 teu
vessels, and there are more
of those to come. CMA CGM
confirmed at the end of the
month a story Containerisation
International had broken
two weeks earlier: that it
was increasing the size of its
vessels on order at Shanghai
Waigaoqiao Shipbuilding
and at Samsung Heavy
Industries from 16,000 teu
to a nominal 17,700 teu.
The move brings CMA
CGM into the realm of its
P3 peers, Maersk Line and
Mediterranean Shipping Co,
which both already have
18,000 teu vessels either on
Source: Lloyds List Intelligence
DATA HUB
WORLD FLEET UPDATE
NEC Birmingham
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DATA HUB
WORLD FLEET UPDATE
Vessels laid-up Week ending March 27, 2014
Notes: Lloyds List Intelligence monitors reported and AIS movements of commercial vessels worldwide. This extract identies vessels with no recorded
movement in the past 25 days.
Inactive teu
size range
Owner operator Chartered in /unknown Total % total fleet
No of ships Teu No of ships Teu No of ships Teu
0-499 13 4,253 96 23,342 109 27,595 28.8%
500-999 12 7,505 52 38,060 64 45,565 8.3%
1,000-2,999 15 24,134 47 85,783 62 109,917 3.3%
3,000-4,999 7 29,488 25 100,970 32 130,458 3.4%
5,000-7,499 9 57,602 17 103,264 26 160,866 4.3%
7,500-9,999 2 18,326 4 35,098 6 53,424 1.8%
10,000-12,999 - - - - - - -
13,000+ - - - - - - -
Total 58 141,308 241 386,517 299 527,825 3.1%
Vessels delivered March 2014
Vessel name Shipyard Teu Reefer
plugs
DWT Knots Beneficial owner Operator Deployment
MOL Quasar Hyundai Samho Heavy Industries 14,000 - 150,936 - Neptune Orient
Lines (NOL)
Mitsui O.S.K. Lines
(MOL)
Asia-Europe
Thalassa Elpida Hyundai Heavy Industries 13,800 - 151,200 23 N.S. Lemos Evergreen Marine Asia-Europe
Leverkusen
Express
Hyundai Heavy Industries 13,200 - 140,700 - Hapag-Lloyd Hapag-Lloyd Asia-Europe
Hyundai Hope Daewoo Shipbuilding & Marine
Engineering
13,050 - 152,700 24.8 Hyundai Merchant
Marine (HMM)
Hyundai Merchant
Marine (HMM)
Asia-Europe
CSCL Winter Dalian Shipbuilding 10,000 - 112,000 - China Shipping China Shipping
Container Lines
Transpacific
Hanjin Buddha Jiangsu New Yangzijiang
Shipbuilding
10,000 - 115,177 - Washington Marine Hanjin Shipping Transpacific
APL Detroit Daewoo Shipbuilding & Marine
Engineering
9,200 - 107,000 - Neptune Orient
Lines (NOL)
APL Middle East Gulf/
Indian Subcontinent
-Asia
Ever Loyal Samsung Shipbuilding & Heavy
Industries
8,452 942 104,409 24.5 Evergreen Marine Evergreen Marine Middle East Gulf/
Indian Subcontinent
-Asia
Ever Lenient Samsung Shipbuilding & Heavy
Industries
8,452 942 104,409 24.5 Evergreen Marine Evergreen Marine Middle East Gulf/
Indian Subcontinent
-Asia
Box King Zhejiang Ouhua Shipbuilding 4,834 600 56,300 21 Box Ships - -
Pegasus Tera Hyundai Mipo Dockyard 1,000 - 12,217 - Pegas Namsung
Shipping
Regional Asia
the water or on order. The
alliance, which received the
green light from the US Federal
Maritime Commission last
month, plans to use larger
vessels to boost utilisation and
increase efficiency across the
three lines fleets.
The pull of larger ships
appears to continue unabated.
United Arab Shipping Cos
order for an additional
18,800 teu vessel at Hyundai
Heavy Industries means
there are now 44 vessels
over 16,000 teu on order,
comprising nearly 800,000 teu
capacity.
Vessels on order now
represent more than 500% of
the total existing fleet in this
size sector, compared with an
orderbook of 21% across the
whole fleet.
Not everyone is convinced,
however. Small ship stalwart
Evergreen has defended
its decision to stick with its
30-strong order of 8,500 teu
vessels, of which 12 are still
to be delivered. Nevertheless,
Evergreen, which resisted
the move to larger vessels for
many years, appears to now
acknowledge that vessels in
the 14,000 teu range are the
way of the future.
Evergreen argues that its
8,500 teu ships are more flexible
than larger vessels and can be
deployed on more routes. This
flexibility has also been noted
in the ailing panamax sector,
with charter rates for panamaxes
finally seeing some good news
last month.
Braemar Seascope reported
a significant number of
panamax vessels booked
on spot charters. The extra
interest has resulted in an
increase in prices for the larger
panamax vessels of as much as
$1,000 per day.
Much of the demand for
panamaxes has been
due to their deployment on
intra-Asia routes. Delays to the
completion of the Panama Canal
expansion could also bring
respite to the panamax sector,
according to Braemar.
Nevertheless, the panamax
sector remains overtonnaged
and scrapping will offer the
only real long-term solution
to depressed rates. While
nine of the 15 ships sent to
breakers yards last month
were panamaxes, these were
all older units, with an average
age of over 20 years.
Moreover, only 32
panamaxes were recorded as
laid up during the final week of
March, representing just 3.4%
of the panamax fleet.
Again, this has had an effect
on prices for secondhand
tonnage on the market.
Figures from VesselsValue.
com show that prices for
a 10-year-old 4,000 teu
panamax fell by 5.6% month
on month in March. The only
positive note in vessel sales
was in the post-panamax
sector, where cascading and
potential use on an expanded
Panama Canal have helped
boost prices for older tonnage.
The price of a 10-year-old
6,500 teu post-panamax
soared by 8.3% in March
compared with a month earlier.
DATA HUB
WORLD FLEET UPDATE
Valuations for post-panamax, panamax and handymax container vessels
Note: All values in $m
Age Capacity (teu) March 17,
2014 ($m)
February 17,
2013 ($m)
Monthly change
($m)
March 17, 2013
($m)
Yearly change
($m)
0 4,250 33.7 34.1 -0.4 36.3 -2.6
5 4,250 23.3 23.9 -0.6 25.1 -1.8
10 4,000 13.4 14.2 -0.8 14.8 -1.4
15 4,000 9.2 8.9 0.3 8.7 0.5
20 3,750 8.7 8.4 0.3 7.5 1.2
25 3,750 8.7 8.4 0.3 7.8 0.9
Panamax Source: Vesselsvalue.com
2014 ($m)
February 17,
2013 ($m)
Monthly change
($m)
March 17, 2013
($m)
Yearly change
($m)
0 1,400 18.3 18.5 -0.2 18.5 -0.2
5 1,400 13.3 13.4 -0.1 12.7 0.6
10 1,400 8.7 8.8 -0.1 7.8 0.9
15 1,400 5.2 5.2 0.0 4.5 0.7
20 1,400 3.6 3.4 0.2 3.0 0.6
25 1,400 3.6 3.5 0.1 3.1 0.5
Handymax Source: Vesselsvalue.com
Current and historical values for tankers, bulkers and containers.
Daily updated sales lists, vessel specications and ownership
information.
Data exports, valuation certicates, interactive charts and
automated alerts
2014 ($m)
February 17,
2013 ($m)
Monthly change
($m)
March 17, 2013
($m)
Yearly change
($m)
0 7,000 65.5 66.4 -0.9 59.7 5.8
5 7,000 48.7 46.6 2.1 41.4 7.3
10 6,500 30.0 27.7 2.3 24.1 5.9
15 5,500 15.0 13.5 1.5 14.2 0.8
20 4,500 9.6 9.3 0.3 8.3 1.3
Post-panamax Source: Vesselsvalue.com
Vessel name Teu DWT Speed (knots) Config Year built Price ($m) Purchaser
Santa Pelagia 5,015 66,821 26 Gearless 2005 14.0 Swizterland
Merkur Star 2,638 39,528 20 Gearless 1996 Undisclosed China
Commander 2,764 35,770 23 Geared 2004 11.0 Turkey
Maersk Vigo 1,678 22,300 21 Geared 2002 11.0 UK
Maersk Valletta 1,678 22,300 21 Geared 2002 11.0 UK
Maersk Vancouver 1,678 22,300 21 Geared 2001 11.0 UK
Sea Breeze 779 8,965 15 Geared 1999 1.70 China
Vessels sale and purchase March 2014
Notes: C=cellular; GL=gearless; G=geared; NC=non-cellular; MPP=multipurpose; U/D=undisclosed Source: Braemar Seascope
Vessels demolished March 2014
Vessel name Built Teu Broken date Broken place Shipbreakers Previous Beneficial owner
Don 1995 4,729 19-Mar-14 Alang Indian Breakers Diana Shipping
Marathonas 1991 4,437 01-Mar-14 Alang Indian Breakers Danaos
Otse 1994 4,230 21-Mar-14 Alang Indian Breakers Ernst Komrowski Reederei
Repton 1994 4,230 30-Mar-14 Alang Indian Breakers Ernst Komrowski Reederei
Irene 1994 4,024 17-Mar-14 Alang Indian Breakers Tsakos Shipping and Trading
Hanjin San Francisco 1996 4,024 06-Mar-14 Alang Indian Breakers Hanjin Shipping
River Elegance 1994 3,800 05-Mar-14 Xinhui Chinese Breakers China Ocean Shipping (Cosco)
Dabat 1991 3,604 19-Mar-14 Alang Indian Breakers Ernst Komrowski Reederei
Baltario 1992 3,604 21-Mar-14 Alang Indian Breakers Ernst Komrowski Reederei
MSC Ayala 1985 2,073 28-Mar-14 Alang Indian Breakers Mediterranean Shipping Company (MSC)
Santi 1996 2,000 19-Mar-14 Alang Indian Breakers Rickmers Reederei GmbH & Cie KG
Buxsailor 1993 1,684 29-Mar-14 Alang Indian Breakers Gebab Konzeptions
Carol 1991 1,208 29-Mar-14 Alang Indian Breakers Hermes Maritime Services
DATA HUB
FREIGHT RATE INDICATORS
A CONTACT at a leading
shipping line recently remarked
that freight rates while
volatile had settled into
an almost quarterly pattern,
with shipping lines increasing
prices to a certain level, then
decreasing them for a couple of
months until they reach a level
that is unsustainable for the
box lines, which then toughen
their stance and manage to
increase them again.
In the first quarter of 2014,
this pattern can be seen
when looking at the Shanghai
Containerised Freight Indexs
composite index, which is made
up of a weighted average of
all-in spot rates from 15 trade
lanes from Shanghai.
It peaked in the third week
of the year at 1,188 index
points before beginning a
slide towards 929. In the week
ending March 21, shipping
lines were able to increase
rates again and the index leapt
to 1,067 points.
Last year, the index increased
week on week by more than
100 points on four occasions;
once in March, once in June,
once in November and once in
December.
This year, the average weekly
index level for the first quarter
was 1,176 points, compared
with 1,179 during the same
period last year, indicating that
freight rates are roughly in line
with 2013.
Meanwhile, average weekly
bunker prices in Rotterdam
at least are below last
years level, meaning there
MORE OF THE SAME FOR 2014
Global spot market freight rates on major trade lanes from Asia are in line with last
years levels but performance varies between various trade lanes, reports Damian Brett
The average weekly freight
rate on the trade lane for the
first quarter of this year stood
at $1,679 per teu compared
with $1,258 during the
same period last year,
reflecting a strong January
and February.
On services from Asia to the
Mediterranean, the weekly
average for the first quarter
stands at $1,710 per teu
compared with $1,209 last
year.
Volume data for January
the latest month available
showed liftings on the trade
lane were up 8.3% year on year
at 1.4m teu.
Transpacific
Freight rate performance on
the transpacific trade lane is of
particular importance during
the first quarter of the year
as it can influence the levels
at which shipping lines and
shippers sign their annual
contracts.
This year, it looks like spot
market rates are behind last
years levels. The Transpacific
Stabilization Agreements price
indices for January the latest
month for which figures are
available stands at 82.42
points from Asia to the US west
coast and 76.7 points to the US
east and gulf coast.
This compares with January
last year when the indices
stood at 87.84 and 78.06
points respectively.
The SCFI also indicates that
spot market rates are below last
years levels.
The SCFI component for
services from Asia to the US
west coast has recorded a
first-quarter weekly average
of $1,975 per feu this year,
compared with $2,319 per feu
last year.
The east coast component
has a first-quarter weekly
average of $3,302 per feu for
the first three months of this
2010 2011
Jan Nov Jan
120
110
100
90
80
70
60
J
u
n
e

2
0
0
8

=

1
0
0
USWC/IPI USEC/Gulf
60
80
100
2013
Jan
2014 2012
Jan
Source: Transpacific Stabilization Agreement
300
600
900
1,200
1,500
M
a
r
F
e
b
J
a
n
D
e
c
N
o
v
O
c
t
S
e
p
t
A
u
g
J
u
l
J
u
n
M
a
y
A
p
r
M
a
r
F
e
b
J
a
n
D
e
c
N
o
v
O
c
t
S
e
p
A
u
g
J
u
l
J
u
n
$

t
e
u
/
M
T
2012 2014
Composite (index level)
Average Bunker price
(Rotterdam HS 380 $/metric tonne)
2013
Composite is a weighted average of 15 major tradelanes out of China; Mar 14
data is up to Mar 28 2014
Source: Shanghai Shipping Exchange & Containerisation International
Figure 1: Shanghai Containerised Freight Index monthly
average: June 2012 March 2014
Figure 2: TSA revenue per feu index (excluding bunker)
November 2010 Jan 2014
Note: Asia to US services = average price per feu.
Asia to Europe and Med = average price per teu. Correct as of March 30
Latest Shanghai Containerised Freight Index trade lane figures
Asia - Med
$1,401
Asia - Europe
$1,214
Asia - USEC
$3,278
Asia - USWC
$1,824
Source: Shanghai Shipping Exchange
should be an increase in carrier
profitability in the first quarter
of this year, compared with the
same period in 2013.
Asia-Europe
Freight rates on the Asia-
Europe trade roughly reflected
the pattern experienced on a
global level; with spot rates
starting the year strongly
before declining until the
end of March when carriers
managed to implement a
general rate increase.
This years attempt to
increase rates during the first
quarter ended up as a bit of
a confused affair, with certain
carriers announcing a mid-
March price push, which was
undermined by other carriers
aiming for the beginning of
April and others going for mid-
April.
All of this resulted in the
failure of the mid-March push,
but shipping lines did manage
to increase prices in the last
week of March/first week of
April by $371 compared with
the week before, to $1,214 per
teu, according to the SCFI.
DATA HUB
FREIGHT RATE INDICATORS
April 2014
Notes: figures are mid points between bids and offers Source: Freight Investor Services
Table 2: Container Trades Statistics all-in monthly freight rate index.
Average rate in each trade lane for 2008 = 100
Notes: * Western Asia = South Asia and Middle-East region, +Tenerife to Lobito.
Source: Container Trades Statistics
Tradelane Oct-13 Nov-13 Dec-13 Jan-14
Asia to Europe 66 76 80 90
Europe to Asia 85 86 87 83
Europe to North America 87 87 87 86
North America to Europe 94 93 91 90
Europe to Western Asia* 87 87 87 85
Western Asia* to Europe 78 77 77 77
Europe to South & Central America 105 103 105 101
South & Central America to Europe 94 93 90 92
Europe to Australasia 85 84 84 83
Australasia to Europe 101 101 101 95
Europe to Sub-Saharan Africa 70 70 70 68
Tradelane Apr-14 May-14 Q3 Q4
Asia to North West Europe $ per teu 1,075 1,000 1,262 1,100
Asia to US west coast $ per feu 1,862 1,800 2,025 1,975
Table 1: Container freight rate swaps forward curves
year, compared with $3,473
per feu during the same period
last year.
Thats not to say the period
was without success for the
carriers. They have managed
to implement general rate
increases on two occasions
once in mid-January and once
in mid-March.
The TSA has also
brought forward a mid-May
recommended general rate
increase of $300 per feu to
mid-April, just weeks before the
new annual contracts are due
to begin.
Transatlantic
It appears to have been a
difficult start to the year for
carriers operating on the
transatlantic trade lane. The
freight rate index produced by
Container Trades Statistics for
services from Europe to North
America stood at 86 points
in January compared with 90
during the same month last
year.
In the opposite direction, the
index stood at 90 in January
2014 compared with 95 a year
earlier.
Rates on the trade lane
have been declining since
August/September last year. As
went to press, there was no
indication from major carriers
of preparations for general rate
increases on the trade lane.
Freight rates on
the Asia to Europe
trade largely mirrored
the performance of
global prices.
Correct as of March 30
DATA HUB
THE dynamics of the transpacific container
trades are rapidly changing. So too is the
definition.
For some services classified as transpacific
never cross the Pacific Ocean. Maersk Line,
for example, has two loops with the TP pre-
fix that head from Asia to North America via
the Indian and Atlantic oceans.
This is all part of the cascade effect as
the new generation of 14,000 teu ships or
larger push out the 8,000 teu-9,000 teu
vessels from the Asia-Europe trades to other
routes.
Many of these are now in services to both
sides of the US, but with the Panama Canal
unable to take anything larger than 5,000
teu at the most through the existing locks,
carriers are increasingly using the Suez
Canal route for loops from southeast Asia to
North America.
Even so, New Yorks Bayonne Bridge
and water depth restricts the east and
Gulf coasts to ships of around 8,500 teu,
whereas much larger vessels are now seen
regularly on the west coast.
Not so long ago, an 8,000 teu ship in Los
Angeles, Long Beach or Oakland would have
been a very rare sight. These days, they are
becoming the workhorses, with panamaxes
declining in popularity.
Lloyds List Intelligence data shows that
the biggest ship deployed on the Pacific is
the 13,092 teu MSC Altair, which has been
calling at Long Beach and Oakland in the
Pearl River Express since March 2012.
The arrival of bigger ships should help prot goals
on the transpacic trades, but smart capacity
management is critical, writes Janet Porter
MANAGING
GREATER
EXPECTATIONS
deploying a fleet with average nominal
capacities of a little over 6,000 teu.
Although ship sizes are increasing,
Drewrys director of research for containers
Neil Dekker says the lines have done a
good job at managing capacity, so far, with
growth of just 1% projected for the peak
third quarter of 2014 compared with the
same period last year. That has helped to
keep headhaul load factors at an average of
86% in 2013, with capacity tight during the
high season. Carriers are now targeting rate
increases of $300 per feu for cargo moving
from Asia to the US west coast, and $400 for
the east coast, in annual service contracts
that come up for renewal on May 1. Current
contract rates average around $1,700 per
feu from Asia to the Pacific seaboard.
Most leading carriers are forecasting
demand growth in the 3%-6% range this
year, buoyed by improved US consumer
confidence. That was supported by recent
Global Port Tracker figures published by
the National Retail Federation and Hackett
Associates that predicts a 3.5% increase in
import containers moving through US ports
in the first half of the year to 8m teu. Last
year saw growth of 2.3% to 16.2m teu.
The over-riding goal for carriers is to
make a profit on this route. The sums are
DATA HUB
TRADE ROUTES
French line CMA CGM has three 11,356
teu vessels in the same string, CMA
CGM Libra, CMA CGM Leo and CMA CGM
Centaurus.
Cosco Container Lines introduced the
13,092 teu Cosco Fortune onto the Pacific in
February this year, with calls in Long Beach
and Canadas Prince Rupert.
Most of the terminals in the Los Angeles-
Long Beach port complex either have the
water depth to handle this class of ship
or will have soon. The one limiting factor
for some facilities is the Gerald Desmond
Bridge that connects downtown Long Beach
with Terminal Island, but it is now being
replaced with a higher one. The terminals
on the ocean side of the bridge are easily
accessible.
Ships of this capacity are still unusual on
the Pacific, with just two in excess of 13,000
teu and 12 in the 10,000 teu-12,999 teu
size bracket, but there are many more in the
7,500 teu-9,999 teu range now serving the
North America trades.
Drewry Maritime Research estimates that
average nominal ships sizes in the Asia-US
west coast trades have risen from just over
6,000 teu in January 2012 to almost 6,700
teu at the start of this year. Of the new mega-
alliances being formed, the P3 vessel-sharing
agreement looks likely to have the size
advantage on this trade with ship capacities
averaging just over 8,000 teu, according to
Drewry, with the G6 and CKYH alliance
excluding new member Evergreen both
TRADE ROUTE INTELLIGENCE
CMA CGM Libra: one of three 11,356
teu ships operated by CMA CGM on
the transpacific trade lane.
Photo: Dietmar Hasenpusch
DATA HUB
TRADE ROUTES
complicated. According to Drewry, lines
break even on current contract rates at
85% utilisation with ships of 9,000 teu.
But the lower slot costs of vessels of
12,000 teu units would put the bottom
line into the black, given bunkers of $620
a tonne and round voyage ship speeds
of 17 knots. The challenge is to keep
10,000-12,999 3,000-4,999
5,000-7,499
7,500-9,999 1,000-2,999
% of total Asia-North America (teu)
0
10
20
30
40
50
60
70
80
90
100
13,000-15,999
26.7%
34.7%
31.8%
4.6%
Figure 1: Teu range proportion
among Asia-North America
operators
0 5,000 10,000 15,000 20,000 25,000 30,000
PIL
Wan Hai Lines
Matson
UASC
Westwood
Zim
CSCL
MOL
NYK
K Line
HMM
Yang Ming
OOCL
Maersk Line
Hapag-Lloyd
CMA CGM
MSC
COSCON
APL
Hanjin Shipping
Evergreen
Figure 2: Weekly operated teu on Asia-North America routes via Panama or Suez Canals
load factors above the critical 85% as
more large ships arrive on the Pacific,
by ensuring smaller tonnage is moved
elsewhere in sufficient numbers.
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WHEN Maersk Line chief executive Sren
Skou disclosed just over a year ago that
one of the carriers Asia-US east coast
services would be switching to a Suez
Canal routing, the news did not attract a
great deal of attention.
Mr Skou, though, was fully aware of the
implications, predicting at the time that
this was one of the consequences of ship
cascading that could have a far-reaching
impact on the whole industry.
Twelve months on, his foresight is
proving to be spot on.
The dynamics of the container shipping
industry are changing rapidly, but not in
the way most had been anticipating.
For whereas over the years there has
been much speculation about the effect
of the enlarged Panama Canal on the
transpacific trades, and how intermodal
services via US west coast ports would
compare with all-water services to the east
coast once the new locks were completed,
far less attention was paid to the Suez
Canal alternative.
Six years ago, an estimated 90% of
Asia-US east coast services went via the
Panama Canal. These days, though, the
figure is closer to 50:50, with the Suez
Canal gaining market share almost by the
week.
Both of Maersk Lines US east coast
loops now go westbound from Asia via
Suez Canal, even thought they are still
categorised as TP services and fall under
the remit of the Transpacific Stabilization
Agreement.
Of the six Asia-US east coast strings
operated by the G6 Alliance, four use the
Suez Canal route.
Data prepared by the TSA shows just
how rapidly trade patterns have changed.
In the week beginning July 7, 2013,
the Panama Canal handled 21,914 teu
of Asia-US east coast capacity operated
by TSA member lines, slightly down
from the year earlier figure of 24,266
teu. By contrast, the Suez Canal handled
16,093 teu in week 28, well up from
the corresponding 2012 level of 12,417
teu. As the year progressed, the Panama
There has been much
speculation about the effect
of the enlarged Panama Canal
on the transpacific trades.
Photo: meunierd/Shutterstock.com
TRADE ROUTES/CANALS
CARRIERS
Cargo from Asia can be routed via Panama or Suez canals, or overland from west
coast ports, to the heartlands, reports Janet Porter
CHOICE WIDENS FOR
US SHIPPERS
Canal kept losing traffic until it handled
just 16,778 teu in week 50, just before
Christmas. That was well down on the year-
earlier figure of 21,235 teu.
In that same week, the Suez Canal
handled more than the Panama Canal, at
17,384 teu, way ahead of the 2012 figure
of 12,802 teu.
The trend has continued this year, and
reflects the arrival of a new generation of
ultra-large containerships into the Asia-
Europe trades, with displaced vessels now
being put onto other routes.
That has seen ships of up to 8,500 teu
deployed in trades from Asia to the US
Atlantic and Gulf coast ports, the limiting
factor for now being the height of the
Bayonne Bridge.
Even so, they are double the size in slot
capacity terms of boxships that go through
the existing Panama Canal locks.
The very largest panamax-class ships
at the moment are 5,200 teu, with
dimensions rather than actual container-
carrying capacity the determining
measure. Most are around 4,800 teu, with
the worlds panamax fleet ageing and far
less fuel-efficient than the later generation
of vessels now entering service or being
Pacific coast ports have been preparing
for ships of this capacity for some time,
whereas east coast ports are less well-
equipped, with only a couple having the
necessary water depth. Furthermore,
the dreadful winter across much of the
eastern part of North America exposed the
frailties of the infrastructure supporting
Atlantic ports, with lines expressing
disappointment at how some terminals
performed.
But right across the country,
transportation infrastructure is under
pressure, according to industry leaders.
We have to find a way to sweat
the assets better than we have done
historically, says Maersk Line North
America president Michael White.
But determining the best route
from Asia to the US is not just a matter
of comparative port efficiency and
intermodal connections, but also a
question of geography.
For services from northern China,
the transpacific route still makes sense
because of the shorter distance. But from
southern China, the economies are more
finely balanced with the two alternatives
about equal from Vietnam.
Whether US west coast ports will
be the losers of these new Suez Canal
services remains debatable, since good rail
connections to the US heartlands mean
that the Pacific gateways are still highly
competitive, and the beneficial cargo
owners have well-established supply
chains.
For the Panama Canal, the challenge
will be to set tolls at a level that allow all-
water services to be priced competitively,
both against intermodal and Suez Canal
alternatives.
With the exception of electronics and
apparel, price will always trump transit
times, South Carolina Ports Authority vice-
president John Wheeler told the recent
Trans-Pacific Maritime conference in Long
Beach.
So who will be the winners? Michael
Murphy, chief development officer for
CentrePoint Properties, reckons it will be
those ports that have a large population
nearby, can attract discretionary cargo, and
have the infrastructure to handle exports
in order to achieve trade balance.
Thats the challenge for those US ports
that want to serve the global marketplace.
switched from the Asia-Europe to Asia-US
east coast trades.
Once the new locks are completed, with
a target date of early 2016 now set, ships
of up to 12,500 teu should be able to
transit the waterway.
Ships of this class are already on the
Pacific, with Lloyds List Intelligence
data showing that the five largest are
Mediterranean Shipping Cos 13,092 teu
MSC Altair, which calls at Long Beach and
Oakland in the Pearl River Express service,
Cosco Container Lines 13,092 teu Cosco
Fortune, and a trio of 11,356 teu CMA CGM
ships.
East coast via Suez capacity growth at the
expense of Panama (teu)
Week Panama
capacity
2013
Panama
capacity
2012
Suez
capacity
2013
Suez
capacity
2012
28 21,914 24,266 16,093 12,417
42 19,171 19,424 15,335 11,895
48 18,263 23,324 17,667 13,107
50 16,778 21,235 17,384 12,802
Source: Transpacific Stabilization Agreement
Far less attention has been paid to the
Suez Canal alternative, but figures are
showing a growth in capacity on the route.
Photo: Oleksandr Kalinichenko/Shutterstock.com
TRADE ROUTES/CANALS
CARRIERS
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THE stakes are high, and all those involved
are acutely aware of the consequences
should something go awry when two
sizeable delegations meet in San Francisco
next month.
On one side will be a large team of senior
executives representing terminal operators,
ocean carriers and stevedores. On the other
will be probably an even bigger group of
officials from the International Longshore
and Warehouse Union.
Caught in the middle and unable to
do anything more than just watch on the
sidelines are US importers and exporters,
ranging from the likes of supermarket giant
WalMart to small mid-west farmers with
little experience of international trade.
But whatever their size, beneficial cargo
owners and freight forwarders, along with
Washington, Wall Street, the business
community and even the general public,
will be monitoring events closely.
Although there will plenty of people
around the negotiating table, most of
the talking will be left to just two of
them James McKenna, chief executive
of the Pacific Maritime Association,
which represents employers, and Robert
McEllrath, president of the ILWU or Jim
and Bob as they are better known to their
respective colleagues.
What they both hope to achieve is a
new contract for the 23,000 registered
longshore workers employed at the 29
ports along the US west coast without any
industrial action that would disrupt terminal
operations, with inevitable consequences
right along the supply chain.
But this is not just a local issue. West
coast ports may be losing market share,
but they still handle some 45% of total
US container volumes. Combined volumes
through Los Angeles and Long Beach came
to 14.6m teu in 2013.
Furthermore, Pacific coast ports,
ranging from the two southern California
heavyweights and Oakland, close to San
Francisco, to Seattle and Tacoma just south
of the Canadian border, support some 9m
US jobs with a domestic business impact
of over $1trn, according to Mr McKenna.
Around 12% of US GDP is tied to cargo
moving to and from US west coast ports,
the PMA estimates.
Promising signs
With so much at risk, shippers started
drawing up contingency plans some time
ago, supposedly ready to spring into action
at the first hint that talks may be running
into trouble.
Yet early signs have been promising,
with Mr McKenna stating in no uncertain
terms that he does not anticipate any
strike action.
Instead, he expects a new labour
contract covering US west coast
dockworkers to be agreed by the end of
July without any cargo disruption.
The existing six-year contract expires
at the end of June. Although a new one
is unlikely to be inked by then, with the
timetable likely to overrun as it did in
2006, the PMA president does not see that
as a cause for alarm.
I dont think so, Mr McKenna replied
unequivocally when asked whether there
could be a strike.
Other employers are also sounding
positive about the forthcoming talks.
We have every belief in Jim and Bob
that the bargaining will take place in good
faith, says Gene Seroka, president of APLs
Americas division and a PMA board member.
Both sides have much at stake this year
as we forge ahead with a new contract to
promote commerce, employment and the
well-being of supply chains.
Mr Seroka is confident that the union
fully understands the competitive
pressures that west coast ports face,
and does not want to jeopardise their
commercial standing in the global shipping
and logistics industries.
Mr McEllrath has not commented, but
signals from the union are nevertheless
equally promising.
Neither side can afford a strike, one ILWU
source told Containerisation International.
There wont be any disruption.
Despite those reassurances, shippers
are unconvinced and already making
contingency plans for possible labour unrest
during the negotiations, having expressed
concern about the relatively short time
available in which to come to an agreement.
The Transpacific Stabilization Agreement
wrote to the PMA in early March on behalf
of cargo interests represented on TSA
shipper panels, asking for the talks to be
brought forward. The PMA negotiates on
behalf of 72 members that operate on the
US west coast, including ocean carriers,
terminal operators and stevedores.
Mr McKenna does not think an earlier
start date would guarantee a contract
agreement ahead of the June 30 deadline.
In 2008, the two sides began talking in
mid-March but failed to reach agreement
before the expiry date.
From March to the beginning of June,
we got nothing done, he told the recent
Trans-Pacific Maritime conference. There
was no pressure to move.
Starting early is not going to change
what we get done, there is plenty of time
and I am optimistic we will get a contract
without disruption, he said.
Neither does he think having the
governments Federal Mediation &
Conciliation Service sitting in on the
negotiations would be helpful.
Their involvement would not necessarily
be a good thing it means we cannot do it
ourselves, he insists. The union side agrees.
But Washington will be watching,
ready to intervene should the ports shut
down, as happened in 2002 when the
Taft-Hartley Act was invoked, enforcing
a mandatory cooling off period, but only
after a nine-day lockout.
Tough talking but no disruption as employers remain condent of reaching
an agreement with the ILWU without labour unrest, writes Janet Porter
STRIKING A DEAL
US PORTS/DOCK NEGOTIATIONS
PORTS
A repeat of that is what alarms the
business community, although talk of
shifting cargo to other gateways, such as
Canadian and Mexican west coast ports,
or those on the US Gulf and eastern
seaboards, is seen as a largely empty threat.
Rickmers Group chief executive Ron
Widdows, who spent 30 years with APL
and is a former chairman of the TSA,
questions where shippers who currently
move cargo through Los Angeles and Long
Beach which together form one of the
worlds largest container port complexes
could realistically go as an alternative.
Contingency planning was always a bit
of an over-used term, he claims.
Cargo flows the way it does because
that is the way the customer wants it to
you cannot make massive changes to your
supply chain. The west coast has to work,
Mr Widdows asserts.
But nervousness within the shipper
community reflects memories of what
happened in 2002 when employers locked
out ILWU members during protracted and
confrontational talks.
More recently, there were very difficult
negotiations between east coast longshore
workers and employers last year.
In late 2012, a dispute involving clerical
workers shut most container terminals in
Los Angeles and Long Beach for more than
a week when ILWU members refused to
cross picket lines.
A jurisdictional dispute involving the
lost to the US east coast as more lines
introduce services from Asia via the Suez
Canal, to deploy ships of up to around
9,000 teu displaced by even larger vessels.
Adding to the pressure is the fact that
the region seeing the fastest population
growth is the US southeast.
With cargo volumes through US west
coast ports growing around only 1%-2%
over the past few years, Mr McKenna is
warning that the picture was not very
rosy, clouded by the new competitive
environment in which shippers have more
options than ever before.
There is too much at risk and we
cannot afford to go backwards, he says.
Maintaining our competitive advantage is
more important than ever before.
But he will also have plenty of positive
points to raise. Robotics are gradually
being introduced to some terminals in Los
Angeles and Long Beach, including OOCLs
state-of-the-art Long Beach Container
Terminal now under construction, the TraPac
facility jointly owned by Mitsui OSK Lines
and Brookfield Asset Management, and
APLs Global Gateway South.
New technologies are still regarded
with some suspicion in union circles,
though, but Mr McKenna is in no doubt
about the benefits.
Since the 2002 contract which marked
the start of new technologies on the
waterfront, with automation also featuring
prominently in the 2008 agreement, the
registered workforce has grown by 34%.
Modernising terminals protects union
jobs, he will be telling the ILWU leadership.
Furthermore, peaceful resolution of
a new contract is critical in preserving
manufacturers, shippers, and retailers
confidence in the ports as reliable and
problem-free gateways for products
moving in and out of the US, he says.
We need a contract that works for all of
us, one that addresses todays economic
realities, continues to provide for employees,
retirees and their families, meets our new
regulatory obligations and strengthens our
combined efforts to fend off competition
to our west coast ports as vital gateways for
goods moving in and out of the US.
Yes, the stakes are high, and there will
be plenty of hard bargaining but both
sides expect to have a new contract in
place by the end of July, without any
damaging industrial action.
ILWU over who should handle certain tasks
at Portland almost drove away the Oregon
ports largest customer, Hanjin Shipping. A
settlement of sorts was finally reached in
March.
Carriers reckon that for every day a port
is out of action, it takes between five and
seven days to recover.
Health benefits
Top of the agenda at this years contract
negotiations between the PMA and ILWU
will be medical benefits, and in particular
who should pay the tax due on so-called
Cadillac plans such as those enjoyed
by ILWU members, to be levied under
President Barack Obamas affordable-
healthcare programme. The two sides may
agree on a three-year rather than six-
year contract with a view to revisiting the
medical benefits should the law change
after the next US presidential elections.
Pensions, automation and union
jurisdiction are also expected to figure
highly, with wages usually less of an issue
than might be expected.
The PMA will be drawing ILWU attention
to the fact west coast ports share of US
container volumes dropped from the
long-term average of around 50% to 48%
in 2012 and to 45% last year, as they
continued to lose discretionary cargo that
moves beyond the immediate hinterland.
As well as competition from ports in
Canada and Mexico, cargo is also being
Negotiators hope to avoid scenes like these, when the Port of LA was shut for more than a week in
late 2012. Photo: 2014 Nick Ut/AP
US PORTS/DOCK NEGOTIATIONS
PORTS
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MULTI-YEAR contracts were the future
once, at least for cargo moving across the
Pacific.
Both ocean carriers and cargo owners
were keen to move away from the annual
round of service contract negotiations
that puts so much pressure on each
side and invariably leaves one party
feeling aggrieved. Instead, many felt it
would be better to have rate and volume
commitments that extended beyond the
traditional 12 months in order to obtain
better long-term stability and predictability.
Fine words, but the truth is that very few
have been signed over the past few years,
and that situation looks set to remain in
the forthcoming contracting season.
The majority of contracts filed with the
Federal Maritime Commission expire on
April 30, a legacy of the Ocean Shipping
Reform Act of 1998. That creates a hectic
few weeks in the run up to May 1 as
container lines and shippers try to gauge
the market for the coming year and do their
best to negotiate a deal that will not make
them look foolish in the months ahead.
Failure in one camp is virtually a given.
Almost no-one anticipated shrinking
volumes in 2009 and the associated
collapse in freight rates. Few predicted the
sudden recovery the following year that
sent freight rates soaring.
The China-US west coast component of
the Shanghai Containerised Freight Index
fell to almost $950 per feu in mid-2009
as world trade stalled, but then climbed to
more than $2,800 in mid-2010 on massive
inventory replenishment.
When the market moves against contract
parties in such a way, one or the other is
likely to walk away from its commitments,
but attempts by the Federal Maritime
Commission to offer a dispute resolution
service have not made any progress.
But neither has the concept of long-
term contracts that might have helped to
smooth out the volatility over a period of
years.
Multi-year contracts are not
happening, says Brian Conrad, executive
administrator of the 15-member
Transpacific Stabilization Agreement.
Although pricing benchmarks such
as the SCFI or World Container Index
now exist that should make it easier to
construct a multi-year agreement, both
carriers and shippers still have their doubts
about the concept.
As Maersk Line North American
president Michael White acknowledges,
multi-year contracts are easy to talk
about, harder to do.
Furthermore, despite the extreme
rate swings of four or five years ago, the
transpacific trades are far less volatile than
the Asia-Europe trades, thanks in part to
annual contracts that account for the lions
share of ocean cargo that moves from Asia
to the US.
Consequently, most container lines
have signed only a handful of agreements
covering freight rates and volume
commitments that extend for more than
the typical 12 months.
Its something clients want to talk
about, but what we are lacking right now
is the mechanism by which rates can be
constructed to have long-term viability, says
Gene Seroka, president Americas for APL.
Likewise, most other leading carriers are
seeing similarly low numbers.
Its very small. I am surprised, Cosco
executive vice-president Howard Finkel told
the recent Trans-Pacific Maritime conference.
Not many have embraced the idea.
NYKs North American president William
Payne has had a similar experience with
only a few long-term contracts on the
companys books.
Alliance partner Hapag-Lloyd appears
to have negotiated more, though, with
Wolfgang Freese, head of the German
carriers American region, disclosing that
around 15% of service agreements with
customers were long-term, with the goal to
raise that to nearer 20%.
Should there be more interest, then
carriers say they are ready to enter in to
discussions with their customers about the
most suitable mechanism.
The conversation gets a little bit deeper
each year, says Mr Seroka.
And if the client thinks it is important,
then so do we.
The truth is that very few multi-year contracts
have been signed over the past few years.
Photo: halfpoint/Shutterstock.com
REGULATION/TRANSPACIFIC SERVICE AGREEMENTS
CARRIERS
The 2014-15 transpacic service agreements are being negotiated,
but why do so few extend beyond 12 months, asks Janet Porter
LOW TAKEUP FOR
MULTIYEAR CONTRACTS
THE VIEW FROM THE BRIDGE
INSIGHT FROM THE CSUITE /PETER ULBER
PANALPINA wants to expand its sea freight
business, viewing both ocean rate volatility
and mega shipping alliances as key
opportunities on the pathway to growth.
Not that the Switzerland-headquartered
logistics operator is a small fry in the deep
sea. It is currently Europes fourth-largest
ocean slot purchaser, recording a 7.7% surge
in volumes to nearly 1.5m teu in 2013, well
above the global market increase of 3%.
Chief executive Peter Ulber joined the
SFr6.7bn ($7.6bn) turnover multimodal
group in May 2013, following the departure
of Monika Ribar, who left after 23 years with
the group and seven years in the top job.
It has been an interesting few years. Since
2009, Panalpina has paid around $130m
in fines to the US Department of Justice
relating to antitrust and other issues, plus
SFr60m combined to the European Union
and Swiss antitrust authorities, while also
taking an unrelated SFr30m impairment on a
Norwegian acquisition.
All of this against the backdrop of the
post-2008 global economic crisis.
Since joining, Mr Ulber and the Panalpina
management team have simplified the
reporting structures and made Europe a
standalone region, while also creating greater
financial transparency from group level
down to business units, allowing loss-making
operations to be more easily identified.
It is clear to me that over the last few
years Panalpina had to deal with issues
within the company, so it is not a reflection
on the management.
Following the 2010 crisis, Panalpina had
a hard time coming back into profitable
numbers. The other issues are solved and we
MOVING
FORWARD
Panalpina chief executive Peter Ulber talks
to Roger Hailey as the company looks to
expand its sea freight business
now have the job to bring the company back
into profitability and to growth.
He adds: That is a significant job, as it is
always difficult to do both, to grow and to
improve profitability at the same time. That
is the reality of the challenge we are dealing
with, and last year gave us indication that
it is possible. I am fairly sure that we will
continue that in the next year as well.
Announcing Panalpinas full-year 2013
results, Mr Ulber said: We recovered from
2012 and gained market share in a low
growth environment in 2013. I am happy to
state that we outperformed the market in
both air and ocean freight, but there is still
a lot of room for profitability improvements,
especially in logistics and ocean freight.
Ocean freight net forwarding revenues of
nearly SFr2.8bn (SFr2.6bn in prior year) came
as gross profit per teu remained steady at
SFr329, resulting in a divisional gross profit
increase of 7% to SFr491.9m.
Following the 2010
crisis, Panalpina had
a hard time coming
back into proftable
numbers. The other
issues are solved and
we now have the job
to bring the company
back into proftability
Photo: Panalpina
A CAREER
ON THE UP
PETER Ulber has an impressive
career in the global freight
forwarding and logistics.
After his studies at the
International School of Logistics
in Hamburg, he held various
management positions from 1985 to
2011 at Kuehne+Nagel in Europe as
well as North and South America.
As a member of the management
board from 2008 onwards, he was
responsible for both sea freight and
air freight at K+N, as well as having
overall responsibility for the global
sales organisation.
As a result of a series of strategic
acquisitions by K+N, he was also
involved in the companys expansion
in Europe, Asia and America. At the
end of 2011, he went into business
as co-founder and partner of the
Charleston Enterprise Group.
AIR TODAY, OCEAN TOMORROW
With global air freight in the doldrums,
ocean is a growth business. Panalpina added
41 less-than-container load ocean services
to its network in 2013, reaching 450 weekly
worldwide, and expects to reach 500
services by the end of 2014.
Automotive and manufacturing industries
accounted for almost 30% of its ocean LCL
volumes in 2013. Consumer and retail, and
fashion customers were close behind with
25%, with hi-tech and telecoms customers
in third place.
Scene is set
So, the scene is set for an increase in sea
freight volumes, but what is the scale of
Panalpinas ambitions and how does it view
its commercial relationship with individual
shipping lines and the broader alliances?
Mr Ulber does not accept the suggestion
that forwarders are sales agents for the
carriers: I do not believe that a good
relationship with a carrier should be, or could
be, defined as being a sales agent. It might
have been like that in the past, but certainly
not any more.
We have a very strategic partnership with
a number of lines, based on what one can
do for the other. There is a lot of back-office
integration with those carriers.
Look at what is happening in the
container industry and the big alliances
that are being formed. Shipping lines are
beginning to commoditise their services,
and for me that offers an opportunity for a
sensible partnership between a forwarder
and the carrier.
Carriers, who offer only a commodity in
the future, can differentiate themselves to
a customer via forwarder relationships. We
might even become closer.
Panalpina, which operates two Boeing
747-8 Freighters, has important commercial
relationships with airlines. How do those differ,
compared with the links to container carriers?
Says Mr Ulber: I think that, on average,
the relationships between a shipping line
and a forwarder are much more strategic, not
just price driven. When I sit in front of the
[shipper] customer, that is where I have to
start. I have to log what my customers want
from me.
They want flexibility, they want to make
sure for example that Panalpina is well
connected with each of the carriers in the
different alliances, so that we can take large
container bookings say 200 teu all at
the same time.
Is the move to container freight a long-term trend?
OCEAN carriers are seeing a shift in
cargo from air freight to deepsea
containers. Is this a long term trend?
Says Peter Ulber: The shift of
certain commodities from air to ocean
is a fact, and there are several reasons
for that.
One is financial necessity,
the reality that a lot of the larger
technology items be it DVD
players, PCs or screens are a lot
cheaper and therefore can absorb a
longer transit time.
Another factor is that the very
low-level interest rates mean that
financing your inventory is not
such a big deal right now. But once
the interest levels come back up,
companies will make a different
calculation again.
Mr Ulber believes that certain
products will stay with ocean freight
in the longer term.
Some goods have moved to
ocean freight and new supply chains
evolved. It is not an ongoing process
that more and more air freight will
switch to ocean freight, because life
is getting faster and consumers want
their goods more quickly.
Products that we dont even know
about will come to market, and will
have to be launched. It it is not a slow
death of air freight.
Photo: Panalpina
Panalpina, along with the other forwarder
majors, has seen a growing number of very
large beneficial cargo owners move away
from direct carrier negotiations, primarily
due to the rate volatility of the market.
It used to be a lot easier, sitting down
with the carriers once a year to agree a rate,
and then meet again a year later. But today
the rates move so quickly, up and down,
that many large shippers have difficulty in
managing them, says Mr Ulber.
Increasingly the shippers demand that
we perform the management of their ocean
freight volumes. It might still be, in some
cases, that the customer negotiates freight
rates directly with the carrier, but then they
let someone like Panalpina manage that
relationship afterwards.
We might do the LCL and some
secondary trades. It is one thing for those
multinational companies to negotiate the
basic transatlantic and Far East westbound
rates, but not the secondary trades.
Panalpina suffered a hit on the Asia
westbound trades in the last quarter of 2013
when it took a position that the rates would
soften, but they did not.
Rates go up and down in a matter of
weeks, if not days, so there is a certain
portion of the market where you have to
speculate and, overall, Panalpina is quite
conservative in that respect.
Adds Mr Ulber: There will always be
some risk in the business, but we have
strengthened the trade management
because you need more expertise nowadays
to handle these volatile markets.
That is the same reason why some
of the larger shippers are coming to
forwarders, because they do not quite have
the expertise any more to handle these
situations.
Panalpina, fresh from its 8% surge
last year, is aiming for a 1.5 multiple on
benchmark global ocean freight volumes in
2014, implying a 6%-7.5% growth in total
teu. Swiss rival Kuehne+Nagel, the top ocean
freight slot purchaser with 3.6m teu last year,
is also aiming for a 1.5 multiple in 2014. So,
where is that traffic coming from?
Mr Ulber says that two parties are losing
out, the shipping line direct bookings part
of an ongoing trend as shippers avoid direct
engagement with the box lines and the
small and medium forwarders who cannot
control those shifting, large shipper volumes.
There has been no rate discount to fuel
volume growth, says Mr Ulber: If you look
at Panalpinas gross margins, it is one of
the highest in the industry, and when you
compare that with the peers we are certainly
at the top in gross margin.
And if you look at how much profit a
forwarder makes per teu, and that is how
we measure it, over 50% has nothing to
do with the ocean freight rate, it is to do
with management fees and value added
services.
Productivity gap
Panalpina has identified a 20% productivity
gap in its ocean freight data processes
which is being addressed by the new SAP
Transport Management operational system.
Although SAP TM is company-wide, it will
be rolled out first in sea freight and is already
live in Singapore, Mexico, Italy, Switzerland
and Germany.
It replaces our current legacy systems in
how we enter shipping data, how we receive
shipping data and how we exchange it with
the carriers and ourselves from origin to
destination.
Adds Mr Ulber: It provides visibility
and delivers status information to our
customers. It creates documentation
and is an integrated system where you
input information once and then it lives
throughout the process.
One reason for our productivity issues
today is that we have to put in some of
this information multiple times, in order to
exchange it with different parties.
That is the main part of the 20%
productivity gap. The other part is that the
customer portfolio at Panalpina consists right
now mainly of smaller shippers and there
you do not have the same productivity as if
you handle a 70,000 teu account. We need a
good mix of large and small shippers.
And larger containerships too?
I dont think there is a shipper or forwarder
out there who does not believe in the need
for larger vessels. There is now a race among
the carriers to further reduce slot costs.
There are investors with enough money
to finance even larger vessels, possibly up to
24,000 teu, using LNG as fuel, all of which on
paper can potentially reduce the slot cost by
another 30%, which is what the Triple-E has
already done.
Is big so beautiful for the forwarders?: I
think the positive effect for Panalpina is that
a single carrier is not going to fill up a 24,000
teu ship on its own, hence you have these
alliances.
Mr Ulber makes the point that the
problem for carriers in a mega alliance is how
they differentiate their service to the shipper,
given that the boxes are not necessarily
going on their own vessel and they do not
have full control of what happens.
It becomes very difficult for any carrier to
differentiate themselves, and if the customer
comes to Panalpina and says I need a
weekend arrival, we can arrange that with
our portfolio of different carriers that are part
of different alliances.
Despite its ocean freight growth target, Mr
Ulber is comfortable with Panalpinas fourth
place in the global league table, based on
freight forwarder teu volumes.
We dont really have ambitions like that,
and I dont find the league tables all that
sensible. We certainly want to be in the top
five, but for the reason that belonging to this
club gives you a different recognition in the
market.
You are invited to all the request for
quotations by default, so that is why it is
important. But whether number four or
number five, I cannot see the advantage.
K+N is the largest and the most profitable
one, but there are also companies out there
significantly larger than us, but they are not
more profitable.
Scale alone is not the answer to make
money. You need a certain base and it is not
easy to make money with 200,000 teu, but
once over 1m teu, then you can certainly
play with the big boys.
Thus Mr Ulbers message: Panalpina is
committed to the ocean freight industry and
we will play a much more significant role in
shaping it through innovations and solutions
in the future.
Shipping lines
are beginning to
commoditise their
services, and for
me that ofers an
opportunity for a
sensible partnership
between a forwarder
and the carrier
PORTS
US PORTS /LOS ANGELES
THE Vincent Thomas Bridge, which spans
the Port of Los Angeles main channel,
may be older than the connecting and
crumbling Gerald Desmond Bridge to Long
Beach, but it is not breaking up and in
urgent need of replacement.
Neither is the countrys third largest
suspension bridge too low for the new
generation of containerships to pass
under, as is the case in New York where the
Bayonne Bridge needs to be raised.
Instead, the largest container port in
the US has been able to focus investment
elsewhere, including a dredging programme
that is now almost finished, apart from the
water depth at three terminals where the
wharves have to be renewed first, including
Evergreens Seaside Container Terminal and
NYKs Yusen Terminal. Once that is done,
all of LAs seven container terminals will
be able to handle the largest ships now in
service on the Pacific.
More advanced cargo-handling
procedures are also being developed, led
by the TraPac facility owned by Mitsui OSK
Lines and Brookfield Asset Management.
By this summer, the first phase of the work
to computerise two of its three the berths will
be complete. This will be the first automated
terminal on the US west coast, ahead of
OOCLs Long Beach Container Terminal
across the bay. The project also includes
redevelopment of a railyard, with TraPac soon
to have on-dock rail for the first time.
The port has contributed $510m
towards the upgrade, which will be repaid
over the life of the lease concession, with
the terminal operator paying for up to
$200m worth of new equipment.
Also on the drawing board is expansion
of APLs Global Gateway South, with
another 40 acres to be developed.
These are tremendously exciting times
for the San Pedro Bay ports this is the
first time in history that Los Angeles and
Long Beach would have spent over $1bn
in one year on infrastructure, says Gary
Lee Moore, interim executive director for
the Port of Los Angeles.
We are doing over $1m a day at LA right
now, and we are putting forward next years
budget that will only be slightly less.
But these have not been easy times
for either Los Angeles or Long Beach,
with container volumes through the two
southern California ports broadly flat over
the past three years. With no real organic
growth, the two have been poaching
customers from each other, with Long
Beach the smaller of the two closing
the gap when Mediterranean Shipping Co
and CMA CGM switched ports because of
service changes. Los Angeles throughput
fell to 7.9m teu in 2013 from 8.1m teu in
2012. An added challenge for each, is that
all three of the big container line alliances
have terminals in both ports through one
or other of their members.
Late last year, Los Angeles brought in
a cargo incentive programme, designed
to encourage container lines to use Los
Angeles as their sole west coast call, rather
than continue on, say, to Oakland.
Under the scheme, an ocean carrier
will earn $5 per teu for each incremental
container it ships through Los Angeles
in calendar year 2014. The rate jumps to
$15 per teu for all throughput, if a carriers
container volume grows by 100,000 or
more units in the same 12-month period.
Los Angeles is confident it has the
intermodal connections to handle all the cargo,
with no need for ships arriving from Asia to
make two Pacific seaboard calls in the US.
That is our strength here, for both
inbound and outbound cargo, says Mr
Moore, who stepped in on a temporary basis
when former executive director Geraldine
Knatz was asked to retire by the new mayor
of LA, Eric Garcetti. Headhunters are now
looking for a successor, and Mr Moore has
decided not to apply, instead returning to his
former job as LA City Engineer.
The threat of competition from the Panama
Canal for cargo heading to the battleground
midwest states has receded, but all west
coast ports still have the new challenge from
the east and Gulf coast ports because of
Suez Canal routings for services from Asia.
Then there is the imminent labour contract
negotiations with the ILWU longshore union,
plus tough environmental measures that
drive up costs for shipping lines.
But in an interview with Containerisation
International, Mr Moore expressed
confidence that the intermodal connections
between southern California and big inland
cities such as Chicago, plus far less weather-
related disruption than on the Atlantic
coast, will protect LAs market share.
When you are number one, people
are always trying to take cargo away from
you, Mr Moore acknowledges. But with a
$1bn five-year programme of investing in
the port, the commitment is clear.
Los Angeles goal is to be the best, most
efficient port there is, he says.
The Vincent Thomas Bridge is already tall
enough for the latest and largest containerships
to pass under. Photo: Stuart MacKenzie
Moore: When you are number one, people are
always trying to take cargo away from you.
Interim director Gary Lee Moore says $1bn investment
programme proves commitment to port, reports Janet Porter
LA TAKES ACTION
THE Gerald Desmond Bridge, a key piece
of infrastructure that is used to truck
millions of cargo containers through the
Port of Long Beach, is only 46 years old
and is already wearing adult diapers.
Visitors on a boat tour of the port can
pass underneath the bridge to see large,
black nets hanging off its underside
there to catch any falling debris that
sheds from the structure. Acting deputy
executive director Noel Hacegaba and
his staff at the port affectionately refer to
those nets as diapers and point to their
necessity as a prime example for the ports
focus on capital improvement.
The bridge replacement project
represents one-quarter of the ports
10-year, $4.5bn capital investment
programme that Mr Hacegaba oversees.
That specific undertaking is at the heart
of the ports continued push to expand
its offerings and capabilities as larger
containerships come to the US west coast.
Three years into the capital
improvement campaign, Long Beach is
trying to put behind it any perception of
instability from a recent board shake-up as
it looks to hire a new director. All of that,
while trying to wrestle cargo business from
its arch rival, the Port of Los Angeles, and
assess the impact of the Panama Canal
expansion. Long Beach handled 6.7m
teu in 2013, up from just over 6m teu in
2012, whereas Los Angeles throughput
slipped from 8.1m teu to 7.9m teu as some
services switched ports.
The push for upgrading the port
is crucial in not only handling but
also attracting the larger 14,000 teu
containerships now in operation.
The good story for us is that we are big
ship ready today and we are on pace to
complete a $4.5bn capital improvement
programme that will make us even
more big ship ready tomorrow, says Mr
Hacegaba.
In addition to the new bridge, which
is slated for completion in 2016 and
will provide more clearance for larger
containerships, the other major project
within the campaigns budget is the
$1.3bn middle harbour redevelopment for
OOCLs Long Beach Container Terminal.
The goal there will be to take two ageing
terminals off line and build a larger, more
efficient facility that will expand annual
capacity from 1m to more than 3m teu, or
nearly half of the ports current yearly box
volume.
Once completed in 2019, that terminal
on its own will rank as the fourth largest
port in the country, according to Mr
Hacegaba.
Speaking just hours after Long Beach
mayor Bob Foster addressed the
Trans-Pacific Maritime conference on the
recent upheaval at the countrys second
largest container port, Mr Hacegaba says
any controversy is in the past. For his part,
Mr Foster says critics fixate too much on
the past.
The controversy or the perception
of instability, as Mr Hacegaba put it
surrounds former director Christopher
Lytle quitting last year to move to Oakland,
and Thomas Fields, the president of the
board of harbor commissioners, being fired
earlier this year.
There is stability, Mr Hacegaba says.
The board is united around making sure
the Port of Long Beach is on the path to
greater success and prosperity and that
includes all our stakeholders.
As for finding a replacement for Mr
Lytle, who left last July, the commissioners
finally hired an international search firm
in February to help fill that position.
Neighbouring Los Angeles is also looking
for a new permament executive director.
Looking at the changing market forces
beyond Long Beach, specifically how the
expansion of the Panama Canal could
impact cargo volumes into the San Pedro
area, Mr Hacegaba says he is confident of
the ports place in moving cargo into the
interior of the US.
Even after the canals expansion is
complete, the largest ship that will be able
to pass through will be roughly 12,500 teu,
which may affect a carriers decision to
move its business to the east coast ports,
Mr Hacegaba says. Also, it is still unknown
how much the canal will charge in new
fees.
All of that it somewhat secondary in
Mr Hacegabas view, with the west coast
advantage of intermodal transportation.
We try to make the case to our
customers that by bringing your cargo
through southern California its more
efficient, faster and cheaper, he insists.
Port goes toe-to-toe with rival Los Angeles as it attempts to
put recent upheaval behind it, writes Alexander MacInnes
LONG BEACH
PREPARES FOR
CARGO FIGHT
US PORTS/LONG BEACH
PORTS
Hacegaba: The
good story for us is
that we are big ship
ready today .
MAERSK Line has once again managed to
outperform many of its deepsea rivals. The
Danish carrier reported profits of $1.5bn
last year compared with $461m in 2012.
Making the profit result more impressive
was the fact that it was achieved after
revenues decreased to $26.2bn from
$27.1bn a year earlier.
In line with most other carriers, Maersk
Line has seen its results swing widely in
recent years from a loss of $2.1bn in 2009
to a profit of $2.6bn in 2010, and then
back into the red in 2011 with a deficit of
$553m.
But over the past two years, the Danish line
has bucked the trend, making good money
when many others remained unprofitable or
delivered very modest returns.
Last years decrease in revenues was
caused by a 7.2% decline in its average
freight rate to $2,674 per feu, which
reflected an overall decline in market prices.
So how has Maersk Line managed
to do what many of its rivals failed to
do and achieve, and even increase,
profitability?
The Danish carriers chief executive
Sren Skou, who took over the role in
2012, tells Containerisation International
that the starting point for understanding
how it has managed to improve is its
change of strategy from aggressive growth
to grow with the market.
Mr Skou explains that the shipping line
decided in 2012 that generating a return is
more important than gaining market share
and therefore it hasnt increased capacity
over the last two years.
We operate 2.6m teu of capacity today
and that is the same as we operated in the
first quarter of 2012, he says. I think that
decision has really helped us pull out a lot
of costs.
Moreover, volumes increased by 4.1% in
2013 to reach 8.8m teu, which means that
vessel utilisation levels have also
improved.
Part of the process of growing with
the market has involved withdrawing
unprofitable strings and also developing
vessel sharing agreements.
Mr Skou says that removing an
unprofitable service has the double
effect of cutting losses and also saving
costs.
The extent of Maersk Lines network
re-organisation can be seen by analysing
the number of services it has closed down
since the first quarter of 2012.
Mr Skou says it has closed two strings
from Asia to North Europe, its Andean
service which covered the west coast of
South America to Europe and its direct
Mediterranean to the US product.
It has also rationalised its Middle East
coverage and combined a string that went
from Asia to the North American east
coast via the Panama Canal with one of its
European services to create a pendulum
service through the Suez Canal.
It has also agreed to new vessel sharing
agreements in various regions across the
globe, including Latin America, West Africa,
Asia and the Indian subcontinent.
A key point to also understand is that
by closing those strings we have obviously
freed up a lot of our capacity and that
has gone back into the network for slow
steaming, Mr Skou says.
Today, although we operate 2.6m teu,
which is the same capacity as we managed
two years ago, we are offering about 8%
less to the market because our vessels are
sailing at slower speeds.
As a result of this network
reorganisation, sailing at slower speeds
and using larger vessels, Maersk Lines
bunker consumption in 2013 was 12.1%
lower than it was in 2012.
Another factor in reducing fuel
consumption was that Maersk Line worked
on developing an even speed.
This is where vessels sail at a more
constant speed in order to try and remove
bunker-burning speed fluctuations.
Those are some of the real drivers, as
well as work on procurement buying
things that we need, services that we need,
as effectively as possible, says Mr Skou.
THE VIEW FROM THE
As Maersk Line reports another year of prot growth in di cult conditions,
chief executive Sren Skou reveals to Damian Brett how it achieved the result
HOW DID THEY
DO THAT?
Figure 1: Maersk Line results
2013 2012 2011 2010 2009 2008 2007 2006
Revenues ($bn) 26.2 27.1 25.1 24 20.6 28.7 26.7 25.3
Profit ($m) 1,510 461 -602 2,642 -2,127 583 217 -568
Volumes (m feu) 8.8 8.5 8.1 7.3 6.9 7 6.8 6.7
2013 2012 2011 2010 2009 2008
Average rate ($ per feu) 2,674 2,881 2,828 3,064 2,370 3,284
Average fuel price ($ per tonne) 595 661 620 458 342 520
Figure 2: Maersk Line rates and fuel price
LINER RESULTS 2013/MAERSK LINE
CARRIERS
Skou: Frankly, I think
that we as an industry
have to learn to live with
excess capacity.
My basic philosophy is: where we can,
adjust the capacity down if we cannot
fill the ships. It is our preferred course
as opposed to indiscriminately lowering
freight rates.
As well as managing to improve bunker
consumption levels, another fuel-related
factor that has helped Maersk Line improve
its profitability is lower bunker prices.
Analyst Dynamars senior shipping
consultant, Dirk Visser, says its figures
showed fuel prices had declined by 10%
year on year.
Maersk Lines own figures show that its
average fuel price per tonne had declined
to $595 in 2013 compared with $661 in
2012.
In total, the company says its bunker
costs decreased by 21% year on year
in 2013 as a result of lower bunker
consumption and bunker prices.
SeaIntel Maritime Analysis chief
executive Lars Jensen says this translates
to bunker savings of $1.4bn in 2013:
almost all of the shipping lines profits for
the year.
Moreover, Mr Jensen calculates that
$600m of this figure is the result of lower
fuel prices, something which Maersk Line
has no control over.
If this $600m is stripped out of the
Obviously the low-hanging fruit on
slow-steaming have been picked but we
still think there are still some
opportunities.
The other element in steaming that
we can also improve on is not just the
average speed but also in having an even
speed the more even speed you can run
your vessels the less bunker you will use.
Whether Maersk Lines decision to
concentrate on costs instead of gaining
market share is the right one will be
judged over the course of time.
In the past, shipping lines were happy to
make a loss one year as they assumed they
would make a profit the following year as
the market swung from overcapacity to a
capacity shortage.
But Mr Skous belief that overcapacity
is here to stay means he is confident that
concentrating on costs is the right strategy.
Frankly, I think that we as an industry
have to learn to live with excess
capacity, he says.
I dont subscribe to the view that
come 2016 we are going to have much
better supply and demand situation
and so on because people will continue to
invest in new ships. And it doesnt seem
like that trend will slow down anytime
soon.
full-year profit result, the Danish carrier
would in fact have reported profits of
$910m.
This is still an impressive year-on-year
increase of 97.4%, but not quite as strong as
the 227.5% increase it actually recorded.
Other initiatives that Maersk Line
implemented in 2013 to improve
its balance sheet include reefer rate
restructuring, which saw an increase in
its reefer rates, changing vessels bulbous
bows to improve fuel consumption, the
elevation of navigation bridges to increase
carrying capacity and the installation of
economisers on auxiliary engines for the
utilisation of waste heat.
So will Maersk Line be able to record
costs savings of a similar level in 2014?
In its outlook for the year, AP Moller-
Maersk says it expects its container
shipping divisons unit cost reductions to
be less than in 2013.
Mr Skou says he hopes the P3 Network
will help reduce costs further, assuming it
receives approval from regulators in China,
following on from US approval.
Maersk Line will continue to drive out
cost in 2014 and frankly before we even
get to P3 there are lots of opportunities
and slow-steaming is one of the tools we
have in the tool box, he says.
LINER RESULTS 2013/MAERSK LINE
CARRIERS
THE VIEW FROM THE
IN THE midst of the tragedies of an
operational conflict that has lasted over
a dozen years for coalition forces and
civil unrest that has being ongoing since
1973 for the people of Afghanistan, a
significant logistics operation is underway
to redeploy coalition forces.
After 448 British deaths and many
billions of dollars spent, the logistics
operation is very much in the UK public
eye and generating much more media
coverage than most logisticians are
exposed to, with every key decision liable
to be investigated by cost-conscious
politicians.
Yet, like many other logistics operations,
the process managed by the UKs Joint
Force Support Afghanistan, JFSp(A), is one
of essentially moving parts and equipment
from one place to another in the most
efficient and effective way, although retail
return logistics doesnt often involve a
three-stage cleaning process and five
sets of paperwork from multiple UK
government departments.
Explosive cargo
To fight a war requires significant
quantities of ammunition all of which
has a shelf-life. Explosive cargo in the form
of bullets and missiles is a key component
of the cargo mix and a rather larger issue
than commercial logistics operations.
As the UKs forward operating units
draw back to Camp Bastion as part of the
Base Redeployment And Closure/Transfer
process, a stockpile of 1,000 tonnes
of previously distributed and returned
ammunition has built up.
Disposing of it safely is the job of
Major Alex Pettitt, the Senior Ammunition
Technical Officer, responsible for the
safety of the UKs ammunition stocks in
Afghanistan. A veteran of operational tours
in Kosovo and Iraq, as well as a qualified
driver of vehicles from motorbikes to the
OSHKOSH tank transporter trucks, she
demonstrates the versatility expected of
members of the UKs Royal Logistics Corps.
As part of their training all RLC officers
are offered membership of the Chartered
Institute of Logistics.
While most ammunition is stored under
ambient conditions, more expensive
ordnance, such as missiles, are kept in
air-conditioned storage, increasing the
requirement for power and consequently
fuel storage for the diesel generators
which keep Camp Bastion illuminated at
night and chilled in the midday desert sun.
Ammunition not being returned to
the UK due to damage or expiration is
destroyed in-theatre. On the day of my
visit 120 tonnes of ammunition was
destroyed in the largest army controlled
explosion for decades. The equivalent of
40 tonnes of explosive was detonated in
a series of linked explosions several miles
away in the desert. The big bang, when it
A massive logistics operation is now under way as the UK military pulls out of
Afghanistan. In an exclusive report, Royal Naval Media Operations Reservist
Ian Aitchison sees rst-hand just what this multi-million dollar move involves
THE LOGISTICAL
BATTLEGROUND
EXCLUSIVE/AFGHANISTAN
LOGISTICS
The sorting tray where thousands of
empty rounds of ammunition must
be sifted to ensure no live rounds are
packed. Photo: Ian Aitchison
came, was not so much of a bang as a big
whoomph as the shockwave passed over
the camp. Even the demolition monitoring
team had to be 3 km away, such was the
scale of the blast.
Whereas degraded explosive material
returned from Iraq took years to dispose of
in the UK due to the lack of large open
deserts to conduct large detonations
the process of utilising the Afghan desert
is resulting in a much faster and more
effective process.
After each explosion army technicians
check to ensure there is no unexploded
ordnance left, which might endanger life,
before vacating the area for locals drawn
to the site by the noise of the explosion.
Such pieces of metal that remain are
quickly scavenged by locals desperate for
anything which can supplement their very
poor incomes at the margins of Afghan
society.
Smaller ammunition is digested by
the containerised small arms incinerator,
designed within the dimensions of a 40
ft high-cube container. The incinerator
was developed commercially by an
equipment were misplaced, the new process
is far more efficient and provides complete
visibility of all parts and equipment.
This huge UK reverse logistics operation
is managed via a two-stage process: stage
one is deciding what is to be exported
from Afghanistan, stage two is deciding
how it is to be exported. The whole
process is built around achieving the
best value for money, conditional upon
security constraints. The lessons learned
from the UKs redeployment from Iraq,
Operational Brockdale a rather simpler
logistics challenge given that Kuwait and
the Gulf ports were a short drive away
from the UKs Iraq base at Basra are
contained in a glossy bible kept handy
for reference in a drawer beneath Sqn Ldr
Blackwoods desk.
Once unit quartermasters log an
item as surplus to current operational
requirements it is logged on the master
spreadsheet under its standard Nato
Stock Number (NSN). For every item there
is a three-part process to evaluate its
value. Part one rests with the front-line
commands in the UK and the importance
army veteran and is known locally as
the popcorn machine due to the sound
it makes when operating. It processes
approximately 20 tonnes of ammunition
each week, (around 4-4.5 tonnes per day),
ranging in size from 50 calibre machine-
gun rounds down to 9mm pistol bullets.
By the end of 2013, over 1,000 tonnes of
small arms had been processed in this safe
and cost effective means.
As Major Pettitt explains: Propellents
are burned, pyrotechnics are BBQd and
small arms are pop-corned.
Value for money
Squadron Leader Adam Blackwoods
role as Staff Officer 2 Redeployment is
the keeper of the redeployment master
spreadsheet. This records all of the UK
materiel to be redeployed from tents
to trucks and guns to gym equipment
and, just as importantly, how much it is
estimated to cost.
Having learned lessons from previous
operations, including Operation Granby
the UKs involvement in the first Gulf War
of 1991 when 150 containers worth of
LOGISTICS
A building
under
construction
at IJC,
made from
containers.
Photo: Ian
Aitchison
LOGISTICS
they attach to an item. For some older
items, they may be vital spares for a
piece of equipment that is no longer
manufactured and therefore it is vital they
are retained and shipped back to the UK,
regardless of relative shipping cost. The
second part rests with Defence Equipment
& Support and whether, looking across
the whole of UK defence equipment,
they require the item to be shipped. The
final part is with Defence Supply Chain
Operations Management, who look at
the shipping costs and how to ship every
item that needs to be returned to the UK.
This process is managed via a sentencing
board, which meets every two weeks
to decide whether a piece of materiel is
required or not.
Around 45% of materiel is expected
to be shipped back. Of the 60% being
disposed of in theatre, depending upon
the item, it is either put up for sale or
scrapped under commercially managed
contracts.
Whereas value and weight will tend
to dictate choice of shipping modes,
the team at JFSpA must also consider
items Attractive to Criminal and Terrorist
Organisations. Aside from the obvious
such as weapons and ammunitions, ACTO
cargo also includes batteries, which can
form part of Improvised Explosive Devices
(IEDs), the main weapon used by the
insurgents in Afghanistan. All ACTO cargo is
flown out of Afghanistan.
As the Head of Force Movement Control
Cell within JFSp(A), Wing Commander
Ryan Roberts notes he is tasked with
removing in two years what took six
years to build. He summarises his role as
building capacity, building resilience and
de-risking.
Wing Cdr Ryan is confident the task
can be achieved. As part of the logistics
planning process, they were able to
capture all known risks. He says the
planning process is better and that UK
forces have a firm grip on what equipment
they have. Due to it being a no-fail mission,
they made sure costs were at the upper
edges of margins of error, equipment
numbers were rounded up and the
resources to move the equipment where
rounded down. Having plugged in all the
operational variables, operational analysis
modeling was done through Defence
Science and Technology Laboratory to
prove their concepts.
As the UKs forward operating bases
have closed or been transferred to Afghan
control and the surplus items have been
double-checked into the overall inventory,
so the accuracy of Sqn Ldr Blackwoods
spreadsheet increases.
With the UK Ministry of Defence keen
to save every penny it can, the 300m
($500m) estimate for the redeployment
costs are recalibrated every month to
double check the latest forecast. Given
finance is such a political issue, this figure
is used to ensure UK Defence ninisters are
kept briefed with the latest information.
So far everything is on track. By the end of
2013, around 40% of materiel and 47%
of vehicles and major equipment had been
shipped back to the UK at costs varying
from $11,000 to $25,000 per teu.
The reverse logistics process
Providing logistics support to bases
beyond Camp Bastion is the role of the
UKs Combat Support Logistics Regiments,
Clockwise from top: The Enhanced Palletised Load System, capable of loading and
transporting one teu across rough terrain; some of the unwanted containers being
cut up and sold on a steel tonnage basis; the bio-wash pit, where vehicles such as
the EPLS are washed prior to removal; and the desert container warehouse, where
assorted parts are sorted and logged. Photos: Ian Aitchison
which are also responsible for bringing
back all necessary equipment from the
forward operating bases to Camp Bastion.
Referring to their role as combat trucking,
they are usually the last to leave a base
and take pride in the fact that after their
infantry colleagues have lifted-off in the
relative safety of helicopters, it is left to
the members of 2CSLR to drive back to
base through hostile terrain.
As the threat from IEDs has grown, so too
has the sophistication of the UKs armoured
logistics convoys. The 2CSLR are able to
defend themselves with armoured and
armed vehicles used to clear routes in the
vanguard of the main convoy. Rollers on the
lead vehicles are designed to detonate any
IEDs laid in the convoys path, preventing
damage to the vehicles themselves. But
should an IED crater be encountered, filling
it in relies on the same British engineering
that UK local councils use to fill-in potholes,
namely JCB diggers, albeit scarcely
recognisable when fully armoured to
protect the driver from bomb blasts, bullets
and rocket propelled grenades.
For the actual cargo transport 2CSLR
utilises the eight-wheeled, $1m, German-
built Enhanced Palletised Load System
vehicles, which are trucks capable of
hauling one teu across rough terrain.
Responsibility for logging smaller items
of surplus equipment back into the UK
military stores stock falls to the Reverse
Support Chain team. Each part has to be
quality-checked, logged, documented with
a unique barcode label and stored in one
of ten 40 ft containers containing around
1,000 separate NSNs. By being linked
into the main defence logistics computer
system, the team is able to provide a
unique label identifying which warehouse
the part should be returned to in the
UK. This system is used in the packing of
containers and has enabled the logistics
teams in the UK to increase the number of
reverse logistics items they can handle in a
day from 2,150 to 8,150, as well as increase
the efficiency of UK transportation ensuring
parts for Bicester are transported to Bicester
and not to Donnington or elsewhere.
In addition, as the whole military supply
chain system updates every 24 hours,
once an item is logged, it can be reissued.
This enables military logisticians in
Helmand to access locally available items
rather than have additional ones sent to
Afghanistan from the UK.
Vehicle redeployment is no less
rigorous, with all equipment subject to a
three stage Proof Of Good Order (POGO)
process. The first stage, POGO 1, is a
thorough clean of each vehicle by their
unit. While a full wash for the modern and
specially designed 40-tonne Mastiff fleet
takes eight hours per vehicle, cleaning
out all the dust from a two-tonne Land
Rover takes on average twenty-two hours.
It enables vehicles to be cleaned to
meet strict EC environmental standards
as enforced by the UKs Department of
Environment, Food and Rural Affairs. POGO
2 is additional preparation. By following
this process when a vehicle arrives back
at its home unit in the UK it is properly
checked and prepared for subsequent
use. POGO 3 is the final checking of
vehicles before departure. At the start of
the redeployment process there were an
estimated 3,345 vehicles to clean; by the
end of 2013, 1,578 vehicles had been
washed and sent back to the UK.
LOGISTICS
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NEW
CONCEPT
After ten years working for NYK as the
head of Group Communications for
Europe and Africa, Royal Naval Media
Operations Reservist Ian H Aitchison
was mobilised last autumn to serve as
the Deputy Chief of Public Affairs at ISAF
Joint Command (IJC) HQ in Kabul. IJC is
the three-star operational HQ responsible
for all coalition activities across
Afghanistan. As a joint coalition HQ, it is
run by service personnel from naval, land
and air forces of 49 different nations.
Commander Aitchison was first mobilised
for Afghanistan operations in 2001 as a
member of the Royal Navy battlestaff
in Bahrain.
The backbone of this international
operation is the air line of communication,
the C17A Globemaster, since the surface
lines of communication have to rely upon
third-world trucking, many hundreds of
miles from the nearest seaport. We feel the
pinch when a C17 is diverted, says Wing
Cdr Roberts, but the logistics chain doesnt
collapse. He continues: So far, while land
transportation has proved unpredictable, it
has not been unreliable. Very little cargo has
been lost between Afghanistan and the UK.
Aside from the RAFs fleet of C17As, the
UK military is making use of commercial
airfreight and has a standing contract
which involves regular shipment by B747-
400F from the UK to Afghanistan. All cargo
sent via this aircraft type is palletised,
including most of the food needed to feed
an army of over 5,000 plus associated
contractors. Occasional use is made
of AN124 planes, primarily for battle-
damaged vehicles and oversized cargo,
since all other mobile equipment can be
driven into the back of a C17.
For items to be sent back via air,
normal EC documentation standards are
expected, which means that every piece
of exported freight requires five forms
confirming: POGO 1-3, VAT certification
from HM Revenue and Customs, Free From
Explosive, adherence to International Air
Transport Authority regulations, and that
there is nothing being smuggled alongside
the legitimate cargo. This last check is
conducted by the Royal Military Police,
who are responsible for sealing all cargo.
The final checks are conducted by the RSC
Aviation Support Group, who also ensure
all cargo is weighted and any tanks have
associated Gas Safety Certificates.
Wing Cdr Roberts is also dealing with three
tiers of infrastructure built at Camp Bastion to
support over 11,000 UK troops at the peak
of operations. Tier one relates to camping
kit tents, field generators etc tier two
is primarily related to containers, be they
used as portacabin offices, accommodation
blocks, mobile laundries, ablution facilities
or generators both of which have to be
dismantled as part of the site restoration
process and tier three is fixed-frame
buildings, which will remain in place.
I visited the scrapyard, which I was
informed is running at a profit under
the watchful management of a UK Army
sergeant and three others. Between July
2013 and February 2014 they have cut
up over a thousand containers which were
uneconomic to repair. Once cut up, the
containers are sold on a steel tonnage
basis. To prevent inadvertent support to
the insurgents, all warlike scrap must be
demilitarised, and this includes ballistics
glass. Between October 2012 and December
2013 this amounted to over 1,800 tonnes of
scrap, of which the majority was iron, but it
also included 275 tonnes of ballistics glass
and 150 tonnes of wood and plastic.
A plan comes together
Observing this massive operation first-
hand was a fascinating experience and one
rather different from the average cross-dock
logistics facility, since it is happening at
an operating base where there is an ever-
present threat of attack from indirect fire,
vehicle bombs and gunfire. Fortunately,
the plan Wing Cdr Roberts helped design is
working: We are jogging, we expect to have
to run, but we can sprint if necessary.
With a firm political and operational
deadline to meet to have all men and
equipment out of Camp Bastion, project
overrun is not an option. As he notes: We
have 65 million stakeholders and our key
customer is the UK Prime Minister.
LOGISTICS
Air palletised cargo lined up ready for shipment at Camp
Bastion. The UK military is making use of commercial
airfreight as well as the RAFs fleet of C17As.
Photo: Ian Aitchison
To prevent
inadvertent
support to
insurgents,
all warlike
scrap must be
demilitarized.
Photo: Ian
Aitchison
THERE is a veritable blizzard of
information, not all of which is useful.
There are year-on-year and quarter-on-
quarter figures to look at, liftings in feu and
teu to be compared, sometimes only group
accounts to be looked at not the liner
activity ebit and ebitda and preliminary
figures rather than the real thing.
The task to prepare a simple and
informative summary showing
like-for-like information for all the lines
for which data is available renders any
comparison of results an elusive and
inexact exercise.
However, sifting through the
information reveals there are some
key pieces of information that tell the
story of 2013 for all lines and offer
insight into the challenges of the year
and the impact on liner shipping as a
whole.
Revenues in 2013 fell for all operators
for which data has become available;
Maersk Lines revenue fell by 3.4%, for
OOCL the equivalent fall was 4.9%, for
CSAV 6.6% and for NOL 9%. In contrast,
CMA CGMs were almost unchanged at
$15.9bn.
Liftings for 2013 rose by up to 7% for
some but others recorded falls of 2.5%-
3% and performance between different
trades quite marked, with intra-Asia/
Australia rising but most others falling,
giving mixed overall results depending on
a lines focus.
Revenue per teu also fell across all
carriers, typically by 6%-8%, clear
evidence of the continuing effect of rate-
cutting despite numerous general rate
increases during the year.
Even the hitherto buoyant intra-Asia
trade has seen reduced revenues as
Which lines were the winners and losers in 2013, who outperformed
and by how much, and what will happen in 2014? Alastair Hill takes a look
SEARCHING FOR
THE KEY TO SUCCESS
Maersks profits
from container
activities went up
from $461m to
$1.5bn.
ANALYSIS/RESULTS ROUNDUP 2013
CARRIERS
cascaded vessels have led to over capacity
and falling rates. Recent reports of a
slowdown in Chinas economic activity,
and geopolitical uncertainty elsewhere in
the world, can only be sources of further
financial problems and difficult trading
conditions for the container trades as a
whole.
The inability to maintain higher
rates for sustained periods has been
a constant source of discomfort for all
operators.
Cost of sales has fallen in relation to the
associated revenues, largely as a result
of favourable movements in bunkers and
supplemented to some extent by carriers
own cost cutting initiatives in other areas,
but surely there can be little scope left for
more progress here.
Only the operators of mega-vessels
can expect to keep costs falling as the
economics of such vessels flow through
to the bottom line. Additionally, where
a carrier owns its terminals or has a
significant logistics activity there may be
scope to increase the benefits through
more intensive usage, together with
propped up in some cases only by
exceptional non-shipping events, such
as the sale of offices ($200m for NOL
Group) or terminal interests ($242m for
CMA CGM) or even the prepayment of
debt facilities and merging subsidiaries
further slow-steaming and schedule
adjustments and cancellations.
Profits in some cases rose dramatically.
Maersks profits from container activities
went up from $461m to $1.5bn, but for
most others they fell or showed losses,
CARRIERS
Table 1: Carrier results 2013
Maersk APL OOCL CMA CGM CSAV
Revenues ($m)
2012 $27,117 $8,054 $5,899 $15,900 $3,432
2013 $26,196 $7,329 $5,609 $15,900 $3,206
Change (%) -3.40% -9% -4.92% -0.1% -6.59%
Profit ($m)
2012 $461 -$251 $296 1,034 -$314
2013 $1,510 -$231 $47 756 -$169
Change (%) 227.55% 8% -84.12% -26.9% -46.18%
Liftings (000 teu)
2012 17,600 6,040 5,215 10,600 1,933
2013 17,000 5,892 5,294 11,400 1,879
Change (%) 4.10% -2.45% 1.50% 7.55% -2.79%
Average rate ($ per feu)
2012 $2,881 $2,509 - - estimated
2013 $2,674 $2,318 - -
Change (%) -7.38% -7.61% -6.30% - -9%
Source: Company filings
CMA CGMs
profit rise
was helped
by the sale
of terminal
assets.
($74m in the case of CSAV), rather than the
operation of vessels carrying cargo.
It is worth noting that OOCLs profit
represents little more than three days
revenue and just a handful of delayed
sailings could have changed this position.
Despite all these changes in key
indicators, global capacity grew
substantially, with most lines accepting
new and larger tonnage and shuffling
the remainder of their fleets, returning
or disposing of surplus vessels and
redeploying others. Pressure on non-
operating owners to accept reduced rates
must be making life tough for them too.
The table on page 43 shows figures for
the few lines that have issued actual or
preliminary 2013 figures.
So what are the prospects for the major
lines in 2014?
Commentators and some of the leading
lines themselves continue to recommend
the benefits of alliances, mergers or
acquisitions. Furthermore, there are few
suggestions that 2014 or even beyond are
likely to make the difficulties in container
shipping any better.
Oversupply will dog the market and
there can be few opportunities for material
cost-savings left if the lines have been as
diligent as they say they have for the past
year or two.
It is hard to see where any mergers or
acquisitions will occur given the quasi-state
ownership of many of the top 20 lines.
This ownership feature does tend to blunt
the financial disciplines expected in most
other sectors and allows weaker lines to
survive.
One possibility, however, may be
some form of combination between the
Japanese carriers: the existence of three
independent lines for the country, despite
its huge exporting activity, suggests there
may be some room there. Historically there
is a precedent: Showa, Y-S Line and Japan
Line were reorganised with government
support over 25 years ago.
The acquisition of smaller niche players
by major carriers is equally unlikely. Many
smaller lines remain founder-owned, move
quickly in response to market changes and
cultivate strong customer connections,
making their owners unwilling sellers
except in the direst of circumstances.
Furthermore, any self-respecting major
carrier would be expected to possess
adequate in-house resources to deliver its
own services without recourse to buying
them in at a premium.
There must be further developments
within the major alliances in lieu of
mergers or acquisitions and there are
already moves for outsiders to affiliate
to them in selected trades, but this does
not address the issue of the chronic
overcapacity for which only disposal or
lay-up is likely to offer any solutions.
Nonetheless, the development of a less
competitive environment may help to
mitigate more serious rate erosion but it is
at the risk of attracting regulatory scrutiny
and its attendant sanctions in the case of
any malpractice.
There must be further emphasis on
customer service. The pursuit of excellence
in IT and the associated documentation
is critical to success in attracting and
retaining customers just as much as access
to timely and reliable schedules and port
rotations.
Many in the industry proclaim the
benefits of scrapping or lay-up but no-one
seems to actually do so in a meaningful
way. It is a bitter pill to swallow to
acknowledge past mistakes in such action.
In conclusion, 2013 was, unsurprisingly
and even on the basis of just a few results,
another poor year with the benefits
of rising volumes more than offset by
reduced unit revenues on major trade
lanes. Many of the changes in these
indicators are consistent with what
actually happened.
There was modest growth in
containerised trade in 2013 leading to the
increase in liftings. The well-documented
overcapacity and influx of new and larger
vessels led to the fall in revenues so any
line that was able to prosper significantly
in such circumstances would have done
very well indeed. Pressure on rates is
evidenced by the reduced revenue per teu
figures.
It will be interesting to see how the rest
of the global carriers, at least those who
report such information, have performed in
2013. There will be little known of MSC, for
example, as it guards its privacy jealously.
For the remainder, the level of
information will be simple at best, and
only their shareholders and bankers will
see the full story, which will undoubtedly
be as grim as for the others.
For further 2013 financial results, see
pages 46 and 47.
Alastair Hill is a qualified accountant with
over 30 years experience in the container
shipping and wider transport industry
having started with Sea Containers in
commercial and business development
positions . He has worked for K Line UK,
UTT (Interbulk) in the Far East and other
tank and dry box lessors and managers.
He is an independent consultant/interim
manager and has also worked in Qatar
and Guyana on development projects.
CARRIERS
OOCLs profit represents little more than three
days revenue. Photo: Dietmar Hasenpusch
THE leading six European freight
forwarders last year handled more than
11m teu of ocean freight, making them
some of the shipping lines largest
customers.
But 2013 also marked a shift in strategy
for some of those leading players, with
year-on-year percentage growth among
the top six players much lower than
recorded over the last couple of years.
The leading sea freight forwarder
was once again Switzerland-based
Kuehne+Nagel, which handled 3.6m teu
last year, compared with 3.5m teu in 2012.
While this growth is roughly in line with the
overall market increase, estimated at around
3% by the leading players, it is behind the
growth levels it has reported in the past.
Last year, for example, its volumes
increased by 6.1% year on year against
estimated market growth of 2%.
It also indicates that K+N may have
given up on its previously-stated ambition
of handling 5m teu by 2015, unless it
makes acquisitions or adopts an aggressive
expansion plan in 2014 and 2015.
The change in growth strategy comes as
the company has installed new leadership
this year, with Detlef Trefzger taking over
from interim boss Karl Gernandt.
Mr Gernandt took up the role of interim
chief executive in March, following
Reinhard Langes decision to step down for
health reasons after four years in the top
job and 40 years with the company.
When announcing its full-year results,
K+N said it was back on the road to
profitable growth, indicating that it would
not take on non-profitable containers for
the sake of increasing volumes.
Mr Trefzger said: Through organisational
adjustments, streamlined cost structures
and a clear focus on margin improvements
we achieved the goals we had set ourselves.
By concentrating on selective growth
in sea freight, we succeeded in keeping
margins stable despite high volatility of
rates.
It increased market share on the
transatlantic and transpacific trade lanes
but did not participate in the intensive
competition on the Asia-Europe lane, it said.
Mr Gernandt said this year he expected
K+N to outpace industry growth of
2%-4% by a factor of 1.5 times.
Transport Intelligence analyst Thomas
Cullen said K+Ns volume figures were
unexciting and noted that a decrease in
turnover indicated weaker freight rates,
which was no surprise.
If K+N adopted a more conservative
growth strategy in 2013, the opposite can
be said for its Swiss rival Panalpina, which
also has a new person in charge.
Panalpina increased its ocean volumes
by 8% year on year in 2013 to reach 1.5m
teu. While this is still well behind that
recorded by K+N, it did actually increase
volumes by more than K+N last year, with
an increase of 107,300 teu, compared with
K+Ns 105,000 teu.
Panalpina chief executive Peter Ulber,
who has been at the helm of the company
since June after taking over from Monika
Ribar, said: We recovered from 2012
and gained market share in a low-growth
environment in 2013.
I am happy to state that we
outperformed the market in both air and
ocean freight. But there is still a lot of room
Source: companies * second half volumes estimated by CI
The leading sea freight forwarder was once
again Switzerland-based Kuehne+Nagel.
Photo: 2014 dapd/AP
Freight forwarder growth for 2013 in line with the overall market,
but results mark strategy changes, writes Damian Brett
CHANGING LANES
Table 1: Volumes (teu)
2013 2012 2011 2010
Kuehne+Nagel 3,578,000 3,473,000 3,274,000 2,945,000
DHL Global Forwarding 2,807,000 2,840,000 2,724,000 2,728,000
DB Schenker* 1,890,041 1,905,000 1,763,000 1,647,000
Panalpina 1,495,300 1,388,000 1,310,000 1,241,000
DSV Air & Sea 772,142 725,806 727,861 707,194
Damco 791,535 798,200 749,500 651,739
Total 11,334,018 11,130,006 10,548,361 9,919,933
EUROPEAN FORWARDERS/RESULTS ROUNDUP
FORWARDERS
for profitability improvements, especially
in logistics and ocean freight.
Mr Cullen said volume growth was
healthy. Panalpina ascribed this
performance to its success in the oil and
gas sector with demand growing in strong
double-digits, he said.
He said that Panalpina expected to
grow with the market in 2014. The ability
to grow faster than the market in air but
especially sea without driving down profits
is a healthy sign, even if it might be harder
to continue to reduce costs next year, said
Mr Cullen.
Management expects that once new
standardised systems and processes are
rolled out, productivity should rise to meet
some of Panalpinas more profitable peers.
Stifel analysts said management expected
the roll out of new standardised systems
and processes to improve productivity to the
level of more profitable peers.
The only other top-six forwarder to post
strong growth in ocean freight volumes
was DSV Air & Sea. The Danish forwarder
saw total ocean freight volumes reach
772,142 teu, up 6.4% year on year, as it
closed in on its closest rival Damco.
As much as 3% of the volume increase
is attributed to acquisitions, meaning
that on a like-for-like basis the forwarder
actually grew in line with the market.
In the coming year, DSV said it would
target market share and was expecting to
increase box volumes by 5% compared
with market growth of 3%-5%.
assertions that it would not increase
volumes at the expense of profitability.
The main reason for this development
[revenue decrease] was lower demand
in the Americas and Europe regions. In
contrast, demand rose on intra-Asian and
north-south routes, it said.
Thanks to a selective market strategy
and continued strict cost controls, the
division was able to maintain its operating
margin despite the decline in revenues
and increased investments in the
transformation of its IT infrastructure.
The other freight forwarder to report a
decline in ocean freight numbers for 2013
was AP Moller-Maersk-owned Damco,
which reported a year-on-year decline of
0.8% to 791,535 teu.
Damco has yet to offer any commentary
on its volume performance but it does
reflect a change in strategy, from above-
market growth in 2012 and 2011.
Last year, however, it did implement a
costly company-wide re-organisation with
the aim of simplifying and consolidating its
operational structure, which tipped it to a
loss of $111m.
The re-organisation involves consolidating
locations it also moved its headoffice
to The Hague as well as reviewing and
implementing new IT systems.
It was also moved into a new division
within AP Moller-Maersk and now reports into
the Services & Other Shipping unit, which will
be headed up by Morten Engelstoft.
Current chief executive Rolf Habben-
Jansen is leaving to take charge of Hapag-
Lloyd. He will be replaced at Damco by
Hanne Srensen from Maersk Tankers.
The final company in this forwarder
round up, DB Schenker, had not issued
its 2013 results when this article was
published.
However, Containerisation International
estimates were showing a small 0.8%
decline in box volumes compared with
2012 to just under 1.9m teu.
Like K+N, this is reflective of a change
in approach compared with previous years
when it posted above market volume
growth figures.
At the half way point, it said volumes
had declined 1.6% compared with the
same six month period a year before. It
blamed the decline on poor performance
on the Asia-Europe trade and said
freight rates were weak as a result of
overcapacity.
However, it saw a decline in profit
per unit last year as a result of fierce
competition and currency effects.
The remaining leading European
forwarders appear to be adopting a more
selective growth strategy with an eye on
profitability.
The second largest sea freight forwarder
in the world, DHL Global Forwarding, last
year handled 2.8m teu.
This is a 1.2% decline compared with
2012 levels but over the last few years
DHL has been prepared to grow by less
than the market when profit margins on
freight movements have been tight.
In 2011, when freight rates were
declining, it saw ocean volumes increase
just 0.1%, but in 2012 when rates climbed
slightly it recorded a volume increase of
4.3%. Last year, when rates dipped again,
its volume growth slipped.
In its full-year results it reiterated past
THE VIEW FROM THE
Panalpina increased its ocean
volumes by 8% year on year in 2013.
Source: companies * second half volumes estimated by CI
Table 2: Year-on-year growth (%)
2013 2012 2011
Kuehne+Nagel 3.0% 6.1% 11.2%
DHL Global
Forwarding
-1.2% 4.3% 0.1%
DB Schenker* -0.8% 8.0% 7.0%
Panalpina 7.7% 5.9% 5.3%
DSV Air & Sea 6.4% -0.3% 2.9%
Damco -0.8% 6.5% 15.0%
Total growth average 1.8% 5.5% 6.7%
Estimated market
growth
4.0% 2.0% 5.0%
EUROPEAN FORWARDERS/RESULTS ROUNDUP
FORWARDERS
THE NEWS THIS MONTH
MORE ONLINE AT CONTAINERSHIPPING.COM BOX WORLD BRIEFING
THE Federal Maritime
Commission has granted
regulatory approval for
a huge vessel-sharing
agreement between the
worlds top three container
lines, but with stricter
monitoring than is usual for a
standard alliance.
The Washington agency
concluded that the proposed
alliance between Maersk,
Mediterranean Shipping Co
and CMA CGM would not be
anti-competitive.
The five commissioners
voted four to one in support
of the P3 Network, with only
former chairman Richard
Lidinsky dissenting.
Maersk Line spokesman
Michael Storgaard said
the three lines strongly
believed that they could
continue to serve the North
American markets with
competitive and reliable
container shipping services
through the P3 partnership.
The decision by the FMC is
a very important step towards
overall approval of P3, which
is still subject to regulatory
review in jurisdictions in
Europe and Asia, he said
shortly after the news from
Washington.
Mr Lidinsky said he
opposed the alliance
because, in reality, it was
effectively a merger.
This agreement will
allow the controlling carrier
the ability, when coupled
with existing discussion
agreements, to deploy its
assets along with those of
the other two carriers, to
dominate vessel competition
Federal Maritime Commission
clears P3 alliance agreement
REGULATION
and narrow shipper options at
US ports, he claimed.
The FMC went on to say
that it had directed staff to
issue alternative reporting
requirements to the P3
agreement parties to assist
in future monitoring of the
agreement, given that there
could be a point in the future
when service levels were
unreasonably reduced, or rates
raised to unreasonable levels.
The FMC monitoring
activities include:
Regular communication
between commission staff
and the [P3] network centre
to discuss operations,
schedules, processes, and
business rules.
Submission of certain
actions by P3 members
ensuring independence
of individual lines and
autonomy of the network
centre.
Ensuring adherence to
the agreement and autonomy
of the network centre
irrespective of individual
carrier interests.
Advance notification of
cancelled sailings and any
service modification resulting
in changes in average weekly
capacity.
Monitoring of rates in
connection with actions
altering capacity.
Monitoring of activities in
connection with third parties
that might demonstrate
prohibited acts or other
behaviour that might threaten
competition.
The FMC said that if
it determined that the
agreement was likely, by a
reduction in competition, to
produce an unreasonable
reduction in transportation
service or an unreasonable
increase in transportation
cost, it would bring a civil
action in the US District
Court for the District of
Columbia.
The clearance applies only
to the US trades covered by
the proposed P3 Network.
The trio aims to operate a
joint fleet covering all the
major east-west trades, and
approval is still needed by
the Chinese authorities. In
Europe, the lines have to
self-assess to ensure there is
no abuse of their dominant
position.
The P3 lines hope to start
their alliance in the early part
of the third quarter of the
year in time for this years
peak season.
Shipper organisations
welcomed the news that
the FMC would set up a
monitoring programme for
the P3 Network.
The US National Industrial
Transportation League, the
Global Shippers Forum and
the European Shippers
Council all backed the plan.
The GSF and ESC both
said they were particularly
pleased that the FMC would
monitor the connection
between freight rates and
capacity deployment.
It was also revealed
that the three carriers had
made changes to their
initial submission to the
FMC in order to help ease
its progress through the
approval process.
Meanwhile, as
went to press, it was revealed
that the FMC had also given
approval to the G6 Alliance to
expand to the Far East and US
West Coast and transatlantic
trade lanes.
Janet Porter
Lidinsky:
opposed
the alliance
beacuse, in
reality, it was
effectiely a
merger.
BOX WORLD BRIEFING
CARRIERS
CMA CGM cuts debt by
20% as terminals sale
boosts net prot
CMA CGM cut its net debt
by 20% to $3.7bn last year
and ended 2013 with a
strong cash position despite
difficult trading conditions
that reduced core earnings by
almost 27% to $756m.
This was one of the
stronger performances in the
container shipping sector that
saw many carriers posting
red figures as the results of
the biggest lines diverged
considerably from mid-size
and smaller carriers.
The coming year is
expected to be much the
same as 2013, with volumes
growing but freight rates
remaining very volatile. The
French line, for long regarded
as vulnerable because of its
high debt levels that topped
$5bn before a financial
restructuring, reported net
profits of $408m, against
$332m in 2012. That partly
reflected the sale of a 49%
stake in its ports business,
Terminal Link.
Excluding one-off gains,
CMA CGMs net profit would
have been around $200m. No
further major disposals are
planned.
The Saad-owned group,
one of the last of the big
containership operators to
report 2013 results, achieved
a return on invested capital
of 10.4%, slightly down from
10.6% in 2012.
Earnings before interest,
tax, depreciation and
amortisation were broadly
unchanged at just under
$1.4bn, while the line made
an operating margin on
4.8%.
Volumes carried rose by
7.5% to 11.4m teu, compared
with global market growth of
around 3%.
In addition to reducing
debt, CMA CGM also ended
the year in a strong liquidity
position, with available cash
of $1.5bn.
CMA CGM confirmed that
six ships on order have been
upgraded from 16,000 teu to
17,700 teu, in line with the
largest vessels in the fleets
of its two P3 partners, Maersk
Line and Mediterranean
Shipping Co.
Janet Porter
EVERGREEN Marine has
reported an annual loss of
$T1.5bn ($49m) for 2013,
reversing its previous annual
profit of $T312.5m, dragged
into the red by the rates
collapse on longhaul trades.
Revenues declined to
$T139.2bn, down only about
1% on-year, the company
reported in a filing to the
Taiwan Stock Exchange. Its
gross profits from operations
shrank to $T388m for the
year, from $T4.2bn in 2012.
Its annual operating expenses
climbed to $T5.5bn from
$T5.3bn.
The company also reported
$T4.4bn of unspecific non-
operating gains, although a
December sale of $75.7m of
containers via a subsidiary to
Elevation Development and
TG Global accounts for part of
this figure.
Evergreen has had an
eventful year so far, officially
joining the CKYH Alliance and
leasing large ships; it sealed
deals for 10 ships of 14,000
teu in January.
Tom Leander
Evergreen Marine posts $49m loss
CMA CGM cut its debt to $3.7bn last year.
Hapag-Lloyd
posts a
net loss
HAPAG-Lloyd posted an
operating profit of 67.2m
($92.8m) for 2013, an
improvement of 41m on
2012, as cargo volumes
increased and despite weak
freight rates.
But the group posted
a net loss of 97.4m after
a deficit 128.3m in
2012.
The German line, which is
in merger talks with Chiles
CSAV, said the outlook for the
container shipping industry
was much better, with the
supply and demand position
improving as older ships are
scrapped.
Earnings before interest,
tax, depreciation and
amortisation were up by
54.6m to 389.1m
Both factors, the
improvement in results
and the higher transport
volume, are clear
evidence of the strength
of Hapag-Lloyd in the
global market, said
executive board
chairman Michael
Behrendt.
However, the average
freight rates continued to
disappoint, remaining $99
per teu below the previous
years level at $1,482 per teu,
he noted.
Revenue declined to
6.57bn from 6.84bn in
2012, due largely to a
weaker US dollar, the main
currency in the shipping
sector.
The group posted a net
loss of 97.4m after losing
128.3m in 2012.
Janet Porter
THE NEWS THIS MONTH
MORE ONLINE AT CONTAINERSHIPPING.COM BOX WORLD BRIEFING
CARRIERS
PORTS
Hapag-Lloyd merger with
CSAV edges closer
CSAV shareholders opposed
to a merger of the companys
container activities with
Hapag-Lloyd have until April
20 to decide whether to take
action that could block the
deal from going through after
the vast majority voted in
favour.
The proposal to create
the worlds fourth largest
container line received
the backing of 84.5% of
shareholders at a meeting in
Valparaiso last month.
Dissidents may exercise
the appraisal rights, but the
merger will go ahead if the
final number of shareholder
votes against the transaction
is fewer than 5%.
Shareholders also
supported a capital increase
of $200m to complete the
purchase of seven 9,300 teu
newbuildings that are due for
delivery from the end of this
year.
The Chilean company and
Hapag-Lloyd have been going
through the due diligence
process since January after
opening merger talks late
last year and signing a non-
binding memorandum of
understanding two months
ago.
Speaking after the
shareholder vote, CSAV chief
executive Oscar Hasbun
expressed confidence that
a tie-up with Hapag-Lloyd
would succeed.
The combined company
would have annual sales of
around $12bn and freight
volumes of some 7.5m teu a
year.
CSAV has also provided
extra details on the $300m
per year savings it expects to
generate through the merger.
CSAV chief financial officer
Nicolas Burr said the $300m
per year savings the merger
should generate were not
wishful-thinking synergies
but relate to the cost
structures of the companies
and their service overlaps.
Where service overlaps
existed, one will be shut
down and the other
maintained to generate cost
savings and improve vessel-
utilisation levels.
Mr Burr said: The
networks basically overlap
in the middle, such as the
Caribbean, and that will
create the possibility to save
some money in destinations
where we had to previously
transport empty containers to
where the cargo originated.
Other savings relate to the
procurement of port, terminal
and intermodal operations and
having one agency network.
Janet Porter
DP WORLD has revealed a
1.5% year-on-year decline in
2013 revenues on the back of
tough market conditions and
asset disposals, but on a like-
for-like basis the company
saw revenues increase by
more than 3%.
The Dubai-based terminal
operator saw revenues slip
to $3bn from $3.1bn a year
earlier while profits increased
24% compared with a year
earlier to $674m.
On a like-for-like basis,
excluding acquisitions,
disposals and monetisations,
new capacity and currency
fluctuations, the terminal
operator reported a 3.6%
increase in revenues and a
23.9% increase in profits.
Consolidated volumes for
the year declined by 3.8%
year on year to 26m teu but
on a like-for-like basis they
slid by the smaller amount of
0.5%.
DP World said its results
reflected a very strong
performance from those
terminals which were
operational for the duration
of the year.
It said the like-for-like
increases in revenues and
profits were driven by a 4.6%
increase in container revenue
per teu.
The Dubai-based groups like-
for-like figures adjust for a mix
of divestment or monetisation
of assets at Tilbury, Adelaide,
Aden, Vostochny and ACT
(Hong Kong) and the addition of
terminals in Embraport in Brazil
and London Gateway in the UK.
DP World chairman Sultan
Ahmed Bin Sulayem said the
performance was achieved
despite the group facing
some challenging market
conditions, particularly in
the first half of the year, and
being capacity constrained at
a number of key locations.
Chief executive
Mohammed Sharaf said the
company would use the cash
generated by the sale of
assets in Hong Kong to invest
in projects that offered higher
rates of return.
Damian Brett
DP World 2013 revenue slips
The vast majority of CSAV shareholders
backed the merger with Hapag-Lloyd.
Photo: Dietmar Hasenpusch
THE VIEW FROM THE
RUSSIA is the worlds largest country in
terms of area, ahead of Canada and China.
As a result, container volume growth can
vary drastically from region to region and
2013 was no different.
The countrys leading container terminal
operator, Global Ports Investment, which
last year purchased major rival NCC in a
deal worth $1.6bn, estimated that overall
Russian container volume growth stood at
5.3% in 2013.
This translates to an overall market of
5.2m teu, excluding transit volumes via
Finland and Baltic countries.
Growth slowdown
But growth levels slowed again last year.
In 2012, volumes increased by 9.4%
year on year, in 2011 the figure stood at
29% and in 2010 growth was pinned at
44%, although these two years followed
a dramatic global financial crisis-related
drop off in volumes of 34% in 2009.
GPI chief commercial officer Roy
Cummins also makes the point that while
growth is slowing, the Russian market is
still increasing ahead of global container
volumes, which Container Trades Statistics
figures show jumped by 2.4% last year.
GPI chairman Nikita Mishin says the
slowdown in Russian growth levels is
linked to lower consumption and imports.
Logistics company Global Container
Services director liner and business
development, Andrey Naraevskiy, admits
that growth isnt as strong as it has been in
the past.
Mr Naraevskiy says: The main factor
influencing container transport volumes
in Russia is GDP, the volume of local
production and the price of oil.
Since 2002-2003 we saw the almost
incessant growth of oil prices until about
the end of 2008 and then there was a quick
rebound of oil prices in 2010 and 2011.
2013 was the year of oil price stabilisation
perhaps even some reduction and it
had an impact on the Russian economy.
The impact of decreases in the price
of oil can be seen in the International
Monetary Funds GDP figures. In 2013,
Russian Federation GDP growth stood at
1.5%, compared with 3.4% in 2012 and
4.3% in 2011.
Mr Naraevskiy points out that
performance varied from region to region,
with double-digit growth for the south of
Russia and Russian Pacific and flat growth
in the countrys north west.
The weaker economic conditions
are cited by both Mr Cummins and Mr
Naraevskiy for a lack of growth through
St Petersburg, which caters for the main
population centres.
Mr Cummins adds that Baltic terminals
are the most affected by macroeconomic
factors and consumer confidence.
GPI figures show that just over 55% of
total Russian volumes enter the country
through the Baltic Basin. But both agree that
this area will remain the main gateway for
Russian imports for the foreseeable future.
Black Sea rises
Contacts identified a number of reasons
for the double-digit growth figures
reported through Black Sea ports, such as
Novorossiysk.
GPI figures show that Black Sea basin
volumes jumped by 10.4% compared with
2012 to 761,000 teu.
The major reason for importers using
Novorossiysk over the last couple of years was
the development of the captive areas around
southern Russian ports, says Mr Naraevskiy.
The Olympic Games in Sochi was the
biggest construction site in Russia for the
last couple of years and there was also a
lot of investment because of that.
The second reason is that there are
still a lot of infrastructure projects outside
of the Olympic Games, a lot of pipeline
construction and government investment
in the region, he explains.
He says that Novorossiysk has over the past
five years also developed itself as a major
gateway for reefer container imports into
Russia, especially from Turkey and the eastern
Mediterranean. Turkey is also improving its
political and business relationships with Russia,
which has helped boost volumes further.
Container volume growth slowed last year, but still
outpaces the global average, writes Damian Brett
RUSSIAS
GROWTH
DIVERGENCE
PORT GROWTH/RUSSIA
PORTS
The deeper draught and all-year-round
access offered by Novorossiysk has also
helped attract shipping lines, as they
are able to utilise larger vessels, offering
improved economies of scale, when
compared with St Petersburg.
Maersk Line has begun running 5,000
teu vessels to Novorossiysk, he says,
whereas St Petersburg is limited to vessels
of around 3,000 teu.
Mr Cummins says that the Sochi Winter
Olympics acted as a sweetener to boost
volumes through Black Sea ports last
year.
The 10.4% growth of last year compares
with 2.1% year-on-year growth in 2012.
GPI does not at present have a terminal
on the Black Sea coast, but Mr Cummins
says it is still interested in entering the
market and continues to explore options.
Pacific coast pick-up
The fastest growing of the regions
is the Russian Pacific coast. Last year,
ports on this coast benefitted from a
rail transportation, not just from
Pacific coast ports, but other locations
as well.
He explains that this is the result of
international shippers entering the market
and creating more sustainable flows of
cargo.
The entry of more international
shippers is also expected to result in
extra volumes for Russian logistics
players, as global players like to outsource
the operation from ports to final
destination.
Elephant in the room
One development that may have an impact
of Russian container volumes over the next
year is the fast-developing situation in
Ukraine and Crimea.
Contacts were understandably cautious
when speaking about the possible impact
on container shipping because of the
changing landscape.
However, it could be argued that in
terms of container volumes, the Russian
market could be the most affected,
simply because of the sheer numbers
involved.
For instance, a 5% change in Russian
container volumes, based on 2013 figures,
would translate to a 32% change for
Ukraine.
At the time of publication, the value of
the Russian rouble had declined rapidly,
which is likely to impact on Russian
consumer spending power for imported
goods.
The decline in the rouble comes on
the back of market jitters over European
Union and US sanctions in relation to
developments in Ukraine.
The first wave of sanctions, which the
EU and US agreed would be applied in a
staged approach, mainly centred on the
suspension of economic co-operation
talks and freezing the assets of certain
politicians and officials.
However, commentators have suggested
the sanctions could be expanded to
Russian businessmen, severing diplomatic
ties, the attempted removal of Russia from
international bodies such as the World
Trade Organization and World Bank, and
possibly import/export bans.
But no firm confirmation of the full
extent of sanctions had been outlined as
Containerisation International was sent to
the printers.
year-on-year volume increase of 18% to
1.4m teu.
Mr Cummins says growth is thanks to
intra-Asia demand, growth in exports from
the central and Siberian regions, improved
container processing times at ports making
them a more viable option, increased
import volumes to central Russia and CIS,
and the continued development of rail
services.
Mr Naraevskiy agrees that improved
rail services, partly thanks to government
investment, from eastern Russia to central
areas has helped boost box numbers
through ports.
He adds that there has also been a
change in supply chain strategy, with
a shift from central distribution to the
whole country from Moscow to regional
distribution directly from seaport gateways
to growing areas with high consumption.
This has benefitted the Black Sea and
Pacific coast ports the most, he says.
Another major development identified
by Mr Naraevskiy is the increased use of
Novorossiysk has developed itself
as a major gateway for reefer
container imports into Russia.
Photo: Svetlana Yudina/
Shutterstock. com
PORT GROWTH/RUSSIA
PORTS
FREIGHT forwarders, like many
others providing transport
and logistics services, are
increasingly being called upon
to expand the scope of their
activity, and particularly to
supply additional services to
cargo owners.
These demands can include
not only traditional tasks,
such as customs clearance
and documentation (which is
not always straightforward in
some regions) and on-carriage
from the port of entry, but also
secure staging, warehousing,
sub-assembly and co-ordination
of multimodal transport.
Such operators are finding
themselves open to the
increasing liabilities of these
various activities and feeling
the pressure from their
multinational clients to bear
greater financial responsibility,
often for extremely valuable
cargoes.
It is vital that forwarders
recognise how their
role is changing and the
consequences of these
changes. Importantly, from a
risk management perspective,
companies must understand
how this can result in newly
acquired exposure to liability
and consequent expense.
In addition they should
understand what steps they
can take to mitigate the
exposure through a disciplined
and organised approach to
the contractual terms agreed
with their customers, and well-
advised insurance cover.
These considerations
are particularly relevant in
emerging markets. The single
biggest potential mistake is
to assume reliance purely on
standard trading conditions
which in the UAE for example
has been set at Dirham 30
($8.00) per kilo or similar
monetary limitations on loss
or damage to cargo during
international movements, such
as conventions covering sea
and air modes. These accepted
international limitations are
now being eroded because
more and more contracts,
drafted by non-transport
lawyers, are being imposed on
logistics operators.
We are seeing contracts
where forwarders are being
asked to take much greater
liability than in the past. The
biggest area of risk forwarders
now face is that they are
effectively being asked to take
responsibility for the full value
of shippers cargo.
Individuals negotiating
contracts on behalf of
forwarders therefore have
many things to consider. It
would be wise for them to
consult their insurer about the
liability implications of the
contract before it is agreed.
In all probability, contractual
obligations in relation to risk
exposure and whether or
not insurance cover can be
reasonably obtained are
scarcely of concern at the
outset of negotiations. The
TT Club, however, advises
project bidders and contract
negotiators to apply their
minds to such issues at the
earliest opportunity.
One of the most notable
challenges is that contracts
being promoted by cargo
owners are usually faits
accomplis, offering little if any
leeway to the unsuspecting
freight forwarder. These
non-negotiable contracts are
frequently generic service
terms, covering all types of
supplier. They tend to be
non-specific and sometimes
considerable imagination
is needed to relate them to
logistics and supply chain risks.
Another concern is that the
contracts that forwarders and
logistics operators are asked
to sign may be based on
no-fault liability and lack typical
carriage liability limitations
or defences. This may be
inconsistent with, or may
derogate from, international
conventions or locally applied
law. Consequently, while
international law such as the
Hague-Visby rules may cut in
for the ocean carriage, this may
only benefit subcontractors.
The forwarder or logistics
operator may be exposed to
substantial liability exposure
from broad and onerous
contractual terms. The
combination of such terms,
including penalty provisions for
performance breaches, and the
high value of many project loads
means that if problems do occur
they may result in a huge claim.
The priority is to transform
the contracts theoretical
provisions into practical
implications so that the
underwriters can make a
judgment as to the risks
insurability, which will depend
on a full risk assessment
covering what is known about
the companies involved
including subcontractors
and the scope of the project.
Non-negotiable contracts
mean exactly what they say and
there is usually little point in
attempting to change them to
fit a forwarders insurance cover.
Instead, the cover if the risk is
deemed acceptable has to be
fashioned around the contract.
Today every forwarder is
under pressure to agree to
deliver services within tight
operational and financial
margins, and will typically
face harsh financial penalties
for delays. As a consequence
of providing these services,
whether sub-contracted out
or provided within their own
operation, forwarders are
clearly taking on ever-growing
exposure to risk.
GUEST COLUMNIST
THE CHANGING FACE
OF LIABILITY RISK
TT Clubs general manager EMEA Andrew Kemp outlines the
additional liabilities being undertaken by freight forwarders
as a result of value-added services oered to shippers
SHOW ME THE MONEY!
THE 2013 reporting season has
been a case of business as usual
for the majority of container
lines, with most reporting losses
for the year.
Exceptions are few, but
include Maersk Line, which has
been the stand-out performer
with profits for 2013 of $1.5bn,
widening the gap to its peers.
As a result, the industry
continues to face a period of
consolidation. The ongoing
merger talks between Hapag-
Lloyd and CSAV, as well as the
P3 and CKYHE alliances, reflect
the necessity to lower unit costs
on the major east-west trades.
Increasing vessel size will
place further pressure on rates.
Maersk Lines annual report
noted that the container
shipping market is most likely
expected to see continued
downward pressure on freight
rates in 2014.
Broken down by segment the
picture is even less favourable,
with vessel capacity over 10,000
teu set to grow by 76% over the
next three years.
Even with careful fleet
management, vessels of such scale
FUTURE FREIGHT RATES: THE
LINES BIGGEST GAMBLE
Cutting costs is only half the battle for protability,
says Richard Ward of Freight Investor Services
Figure A: SCFI NWE spot rate v APL Asia-Europe avg revenue per feu
make capacity control increasingly
difficult. One or two cancelled
sailings have a disproportionately
large effect on supply and
therefore rates, even before the
use of general rate increases.
The volatility this creates
will continue to be reflected
in carrier earnings, as they
cannot individually determine
future freight rates on the major
deepsea routes.
The challenge for carriers is
considerable. The inability to
control future rates ensures
they are fully exposed to the
spot market and must gamble or
merely hope that rates will move
in their favour.
But this strategy ensures that
carrier income moves in line with
the volatile underlying market.
The accompanying graph of
revenues reported by APL since
2011 shows the direct correlation
to the Shanghai Containerised
Freight Index. This trend can be
seen throughout the industry and
goes some way to explaining the
unstable earnings that carriers
continue to report.
Such risks do not go
unrecognised by the carriers,
which are required to
outline such dangers to their
shareholders. Consider the
following statements taken
from carrier financial reports
which highlight their preference
for removing volatility, thereby
reducing the impact it has on
their bottom line.
The groups revenue will
increase/decrease by $56.3m
for 1% increase/reduction of
the average container freight
rates with all other variables
held constant.
Its corporate strategy is
to limit the market price risks
resulting from ordinary business
operations by using hedging
transactions.
In other shipping sectors,
owners and operators adopt
ways to mitigate against risks
of ordinary business. This is
achieved via hedging strategies
that enable these companies to
focus on their core business.
Typical tools include fuel
price, foreign exchange and dry
freight rate hedging; risks that
are recognised and mitigated
using standardised derivative
instruments. These are tools that
some of the container lines use
too, as their annual reports make
clear: The derivative transactions
are executedto hedge the
groups exposure to interest
rate increases, fuel oil increases,
freight decreases, and foreign
currency exchange rate risk.
If applicable, up to 80%
of the anticipated annual fuel
requirements are hedged
against price increases.
But for the container lines,
their greatest recognised risk
freight rate volatility remains
unmanaged despite its impact
on earnings. This is unique in the
shipping industry and perhaps in
wider business too.
Any company that is exposed
to investment or revenue risk
should have an appropriate
hedging policy in place to
secure the returns on the newly
purchased assets, thereby
satisfying lenders and reducing
the cost of capital.
As Michael Rainsford,
commodity trader at Morgan
Stanley, illustrates: There are few
other industries that invest so
heavily into assets without the
ability to lock in future margins.
Power plants, for example,
only invest in new assets when
hedging secures favourable
margins between electricity
prices and the feedstock required
to run the asset.
By continuing to focus on
reducing costs, container lines
are only tackling half of the issue
at hand as volatile earnings will
remain a challenge even with a
reduced cost base.
Carriers that are able to lock in
their future margins and deliver
stable earnings will be the ones
with the sustainable investment
proposition for their shareholders
and a competitive advantage that
is attractive to their customers.
Q
1

2
0
1
1
Q
2

2
0
1
1
Q
3

2
0
1
1
Q
4

2
0
1
1
Q
1

2
0
1
2
Q
2

2
0
1
2
Q
3

2
0
1
2
Q
4

2
0
1
2
Q
1

2
0
1
3
Q
2

2
0
1
3
Q
3

2
0
1
3
Q
4

2
0
1
3
SCFI NWE
APL avg revenue per feu (Asia-Europe)
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,000
2,100
$
/
f
e
u
$
/
t
e
u
1,900,000
1,700,000
1,500,000
1,300,000
1,100,000
900,000
700,000
500,000
Source: SSE, NOL
IT IS often debated whether it is better
to be a jack of all trades or an ace of one.
Rotterdams Waalhaven Group certainly
seems to believe that its better to be
able to offer a wide range of services.
The company offers empty container
storage, barge services, intermodal
services, full-container services, an
inland terminal, vessel supplies (such as
parts and food), barge and rail terminals,
customs services and container repair
services.
Managing director Jan Overdevest says
that at present its short-distance barge
activities are performing well because
shippers are increasingly looking for a
greener transport option.
Using barges also avoids road
congestion, while rail transport over
short distance is too expensive.
Mr Overdevest says longer distance
barge services are also experiencing
increased demand because of the rising
cost of fuel.
Barge demand
But this increased demand does create
problems at the deepsea terminals
where operators tend to favour larger
barges that can load more containers in a
single call, Mr Overdevest says.
We do have some concerns whether
the deepsea terminals are ready to
handle future demands, he says.
Something like 80% of all moves
from deepsea terminals are on the
waterside, if you add up all the barge,
feeder, shortsea and deepsea moves.
I still dont have the feeling they think
about it they have some 2.5 km of
deepsea quay and they plan about 300
m of barge quay.
Also, if they need a gang, they get
it from the barges and put it on the
deepsea vessel. But in fact barging is
a 24/7 activity so you can plan it very
efficiently.
The deepsea terminals emphasis is
on call size and my opinion is that you
have to serve the market and the market
also wants smaller barges transporting
traffic over shorter distances.
So you have to adjust to different call
sizes and say how can we optimise our
process with the knowledge that we have
barges from 400 teu to two teu?
He says the problem of workers being
moved from the barge quay to deepsea
quay during busy times will be solved
to an extent in Rotterdam when the
automated Rotterdam World Gateway
and APM Terminals Maasvlakte II
facilities open for business later this year
because, being automated, they reduce
their reliance on quay workers.
Running on empty
Waalhavens empty container business
is also performing well. He explains that
flexibility is the key as demand from
shipping lines can vary greatly from one
day to the next.
One of the advantages it has is the
location of its 300,000 sq m empty
depot, close to Rotterdams deepsea
container terminals. This means it can
quickly respond to customer demand.
In the future, Mr Overdevest expects
demand for empty container storage to
increase in Rotterdam because of the
consolidation of shipping lines and the use
of larger of vessels calling at fewer ports.
Having its warehouse activity, United
Container Freight station, located close
to the empty depot and Rotterdams
container terminals also has its
advantages.
We see it as a nice value-add activity
where you can you use the strength of
the different activities. If you can avoid
bringing back an empty container to a
depot, which normally costs between
70 [$97] and 100, you have an
advantage.
Also, if you have cargo which has to
be stuffed in a container we can do that
for you, we pick the container directly
next to the warehouse, stuff it and move
it by barge to the deepsea terminal
thats a very nice concept as well.
Haulage trends
Another trend noted by Mr Overdevest is
the increasing use of carrier-controlled
haulage to inland container yards as
opposed to merchant haulage from the
terminal to final destination.
He explains that the shipping lines are
transporting containers to inland terminals
in the region of the final destination and
the inland terminal organises the last mile
delivery from there.
He explains this is hassle free for
the carriers as it is easier for them to
organise delivery to a single inland
terminal rather than delivering directly
to a variety of warehouse locations.
He estimated that the use of carrier
haulage had increased from a historical
level of about 20% to 45% last year as
a result of the continued development of
this hybrid system.
So is the jack of all trades approach
working for the Waalhaven group?
Mr Overdevest says that it benefits
when demand in Rotterdam is weaker,
it has fuller empty container depots,
but when demand increases, container
moves in and out of the depot increase
as does the number of barge moves and
the use of its other services.
Waalhaven Groups various services means it
faces a range of challenges, writes Damian Brett
BARGING IN
SERVICES/WAALHAVEN GROUP
LOGISTICS
Overdevest: short-distance barge activities are
performing well because shippers are increasingly
looking for a greener transport option.
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www.containershipping.

com APRIL 2014

29 April to 1 May 2014

29 April to 1 May 2014

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