Worsening tardiness in ship arrivals
Asia to Europe container shippers with tight supply chains are finding that ships are increasingly arriving late versus published schedules. More than 40% of vessels arriving from Asia at key European ports were more than 24 hours late, while more than 61% of vessel arrivals were more than 12 hours behind schedule, according to the supply chain software company Cargo Smart.
The findings came from a survey of 709 vessel arrivals by 22 ocean carriers at six major North Europe ports between 15 March and 15 April. The ports analysed were: Antwerp, Bremerhaven, Felixstowe, Hamburg, Le Havre and Rotterdam. Carriers’ schedule reliability worsened in every quarter for 2013, according to Drewry, which said reliability will likely deteriorate further this year as carriers skip more voyages in a drive to cut costs.
Average on-time reliability dropped below 64% in the fourth quarter, the lowest it has been since it hit 61% in the third quarter of 2011, Drewry said in its’ Carrier Performance Insight report. SeaIntel has measured more than 10,000 monthly arrivals, finding that reliability worsened ‘considerably’ over the December-February period, although March saw a slight improvement.
“The carriers were heavily affected by adverse weather in January and December, but it is clear that this does not explain the entirety of the downfall in performance, as the drop in performance is not uniform,” SeaIntel COO and founder Alan Murphy told the JOC.
It’s unclear what is causing the delays, but one possible reason is the growing size of ships in the Asia-Europe trade and ports’ inability to keep pace with improved productivity. All six of the currently deployed Maersk 18,000 TEU Triple E ships are deployed on the Asia-Europe trade, as will a total of 37 ships on order that are greater than 17,000 TEUs once they are delivered over the next few years.
“As more mega vessels with a capacity of over 14,000 TEUs are expected to be deployed on the Asia-Europe trade over the next year, it is foreseeable that some European ports and their terminals may have issues handling the influx of containers,” said Cargo Smart Director of Sales and Services Graham Collins. Larger vessels are remaining in ports longer and generating more container volumes, placing immense pressure on port equipment and yard moves. The big alliances also mean that containers belonging to many different carriers can arrive on the same ship.
Capacity reduction felt by shippers
Shippers can expect more cargo to be ‘rolled’ to later voyages as container liners continue to cut costs by slow steaming and laying up vessels, Drewry Maritime Research said in its latest Container Insight Weekly. Slow steaming and layups allowed carriers to limit effective capacity growth to 22% since 2008, despite introduction of larger ships. Without those measures, capacity would have grown 40%, Drewry said. “In 2013 alone, slow steaming and layups reduced available supply by nearly 3 million TEUs.” These measure “have been relatively successful in reducing voyage costs and raising ship utilisation” but are “at times excessive and detrimental to shippers,” Drewry Said.
Slow steaming and additions to the number of ships in a service loop, first appeared on Asia-Europe trades and since early 2008 have expanded into the trans-Pacific and several north-south routes. “Carriers quickly realised the fact that as well as reducing voyage costs, slow steaming offered a way of managing the vessel surplus that was building as demand shrivelled,” Drewry said. Carriers also use layups as a last resort for matching supply with demand.
Before slow steaming, a typical Asia – North Europe service averaged eight ships designed for speeds of 24 to 25 knots. Now a typical service loop has 11 ships sailing at about 17 knots, Drewry said. Twenty two weekly west bound Asia-North Europe services require about 250 ships with average capacities of slightly over 11,000 TEUs.
“If slow steaming had never happened and services in that trade were still running with eight ships rather than 11, then only 180 ships would be needed to maintain the same number of loops, meaning carriers have effectively absorbed 70 or so ships in that trade along,” Drewry said. “The suboptimal use of carriers’ biggest assets was essential to reduce voyage costs, but shippers are paying the price with longer transits and delays in peak cargo months”, Drewry said.
Despite 5% lower freight rates Maersk profits surge
AP Moller-Maersk Group, owner of Maersk Line, the world’s No. 1 container shipping company, posted a 53% year-on-year first quarter profit increase to USD 1.2 billion, drawn on revenues of USD 11.7 billion, up 1%. Quarterly Maersk Line container profits rose 122% to USD 454 million despite 5.1% lower freight rates. The big gain was attributed to 9% unit costs, cheaper bunker and 7.3% more volume to 2.2 million FEU. “Maersk line revises its’ expected result from being in line with 2013 ($ 1.5 billion) to being above the 2013 result, driven by improved operational persormance and utilisation,” saith the company statement.
“Global demand is expected to grow 4% - 5% and Maersk Line seeks to grow with the market. Pressure from excess capacity is expected to remain throughout the year,” the statement said. Maersk port operator, APM Terminals, posted a 29% profit increase to $ 215 million, attributed to a 9% increase in throughput to 9.4 million TEU as new terminals become fully operational.
New way of insuring cargo for mega ships
The millennia old insurance principle called general average, which pools the cargo and hull liabilities in a marine disaster, won’t work in an age when container ships of up to 18,000 20 foot equivalent units might be lost. Because cargo owners would have to wait years before their losses could be adjusted and insurance paid off. Swiss Re, the London based reinsurance company is proposing a simplified approach called the Landmark Consortium.
“In the nightmare scenario of an 18,000 TEU ship casualty, it could take years before adjustors could value the cargo lost and before owners get paid,” said Swiss Re Head of London Marine Peter Townsend. “The insurance industry needs to respond to solve this issue,” he told a seminar on Mega containership Casualties in New York sponsored by NYMAR and the Propeller Club on New York/New Jersey on March 21. When the 4,038 TEU APL Panama grounded on a beach off the Port of Ensenada in Mexico on Christmas Day 2005, it was carrying 1,805 containers holding cargo with 1,445 different owners.”
“Under general average, it took adjustors 6,600 man hours of time and six year to value the $ 68 million in cargo losses and pay them off. Under general average, in the loss of an 18,000 TEU containership, the cargo could have as many as 10,800 beneficial cargo owners and take adjustors, 11,966 man hours or six man years of time to evaluate. The losses could amount to $480 million for the cargo and $ 700 million for the vessel. “Who knows when the cargo owners would get paid,” Townsend said.
Container volumes contract at Nehru Port
Container throughput at India’s Port of Jawaharlal Nehru declined 2.5% year-over-year in fiscal year 2013-14, which ended 31 March 2014, continuing a slide that began in the previous fiscal year. The volume of containers shipped via the three box facilities reached about 4.15 million 20 foot equivalent units, down from 4.26 million TEUs in 2012-13, according to provisional figures released by the port authority.
“Besides the global container shipping slowdown, operational disruptions caused by labour troubles and trucking issues at the two private terminals over the past few months seriously impacted the port’s performance in fiscal 2013-14,” a port official said. APM Terminals Mumbai handled 1.87 million TEUs, down from 2 million TEUs a year earlier. Traffic via DP Wold managed Nihava Sheva International Container terminal tumbled 20% to about 960,000 TEUs from 1.21 million TEUs.
State run Jawaharlal Nehru Container Terminal contributed 1.3 million TEUs, increasing from 1.05 million TEUs. The port’s total cargo tonnage in 2013-14 dropped 4% year-over-year, from 64.5 million tons to 62 million tons. Nehru Port, also known as Nihava Sheva, accounts for more than half of India’s total containerised ocean traffic.
In 2013, the port authority launched several major infrastructure improvement projects, including the awarding of a 30 year concession to Singapore’s PSA International for the construction of a 4.8 million TEU fourth terminal with a projected investment of $1.3billion, helping it double throughput capacity from the current 4.17 million TEUs to 9 million TEUs.
Midsize container ships – Massive surplus
The opening of the enlarged Panama Canal in 2016 likely will trigger a ‘massive’ surplus of 4,000 to 5,000 TEU container ships, many of which will have to be scrapped regardless of their age, according to Drewry Maritime Research. After its locks are enlarged, the waterway, which currently can only handle so called Panamax ships up to 5,000 TEUs, will allow the transit of vessels up to 14,500 TEUs. There is already a growing surplus of Panamax vessels due to the continuous cascading of surplus ships into the North-South trades, the London based analyst said.
Mediterranean Shipping Co., recently announced service between Asia and West Africa deploying 10 ships averaging 4,000 TEUs underlines a growing difficulty for the North-South trades, as the surplus of Panamax ships keeps charter rates low, making it easier for competing carriers to penetrate markets more deeply, regardless of demand.
A similar scenario is playing out in the Asia-Australasia trade, where average vessel size rose from 4,365 TEUs in the third quarter of 2013 to 4,900 TEUs by January 2014 and rates have turned much more volatile as well, according to Drewry. Likewise, capacity on the Asia-Brazil head haul route spiked 17.9% from January to July 2013, while cargo volume increased only 4.1% year-over-year, such that carriers collectively lost an estimated $ 152 million in the first half of 2013, Neil Dekker, Drewry’s Head of Research told the JOC’s TPM Asia Conference last fall.
The delayed expansion of the Panama Canal has given the North-South routes a welcome reprieve, in the face of slow growth. Container shipping demand in North-South routes in the aggregate increased 4.9% in 2013 and is forecast to grow 5.7% in 2014. Growth was 10.3% in 2011 and 3.1% in 2012 (JOC).
[The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).]