P3 Alliance: Collapse due to Chinese authorities
Europe’s major ocean carriers, ports and shippers are urgently rethinking their business strategies following the shocking news that Chinese antitrust authorities had rejected an application by Maersk Line, Mediterranean Shipping Co., and CMA CGM to join forces in the P3 Network.
Maersk reacted calmly to the unexpected thumbs down from Beijing, saying there would be “no material impact” on the group’s expected result for 2014. But that didn’t impress investors, as the Danish group’s share price plunged as much as 8.7% on the news, the biggest intra-day decline since May 16, 2012. It later recovered somewhat and was down about 7% by mid-afternoon on the Copenhagen Stock Exchange.
Although the collapse of the P3 won’t immediately affect Maersk Line, which expects its 2014 result to exceed 2013’s $ 1.5 billion profit, it’s sure to impact the carrier’s ability to keep cutting costs, the main benefit of the alliance with MSC and CMA CGM and the key to its surging profits at a time when most of its’ rivals are losing money. Of the three partners, Maersk was expected to reap the most benefit from the P3, with some analysts forecasting a $ 1 billion payoff from synergies and reduced costs. The vessels deployed by the P3 carriers were expected to out bunker consumption by 8%, according to Jane Eskelund, Managing Director of Maersk China.
CMA CGM was equally tranquil, saying it is confident it “will maintain its’ operating performance and continue to outperform the industry.” But the French carrier also was counting on P3 driven cost cuts to offset softening freight rates and slowing traffic growth to boost operating profits, which declined 7.4% in the first quarter to $ 186 million from $ 201 million a year earlier.
Europe’s ports will take an even bigger hit from the collapse of the P3. Antwerp was the major beneficiary when the carriers announced their schedules in October, gaining an extra call on the alliance’s Asia-North Europe service. Rotterdam, the Belgian port’s main rival, lost three export calls and two imports calls, more than half its’ Europe-Asia calls. Zeebrugge and Hamburg also lost out. Bremerhaven was unchanged, while Jade Weser, virtually empty since it opened in September 2012, gained a much-needed call.
Rotterdam stands to be the main winner from the P3 collapse. It didn’t expect to lose traffic from the reduced number of P3 services because it would have handled a higher number of Maersk’s Triple E vessels, which are capable of carrying 18,000 20 foot equivalent container units. Still, fewer calls would have reduced harbour dues and meant less work for ship pilots and tugboats.
Europe’s biggest container port, however, doesn’t think the container shipping industry will stand still following the demise of the P3. There are “more questions than answers,” a Rotterdam port spokesman said. “We will have to let the dust settle.” “It is still too early to make any pronouncements as to the possible consequences,” a spokesperson for the Antwerp Port Authority said.
State-owned shipping loss doubles
State owned shipping corporation of India reported a marginal net profit for the fourth quarter of fiscal year 2013-14, which ended March 31, 2014 but its’ losses for the full year more than doubled to $ 46.6 million from $ 19.3 million in the previous year. The country’s largest shipping line made a profit of $ 2.2 million for fourth quarter (January to March), reversing a net loss of $ 48 million in the same period the year before, on revenue that jumped 32% to $ 217 million. “Higher operating earnings coupled with tight cost controls helped the company return to profit in the last fiscal quarter,” a company official said.
Quarterly operating expenses were on par with the year before period, at $ 210 million. The national carrier’s full year revenue, including accrued profit from disposal of ships, inched up 1% year-over-year to $ 744.5 million, but net sales remained relatively flat, at $ 702 million. Yearly operating loss from liner operations swelled sevenfold to $ 37.6 million from $ 5.3 million in 2012-13, as income tumbled 22% year-over-year to $ 153 million.
The company cut its bulk shipping loss for the year by half to $ 30.4 million from 62.1 million on a 7% increase in revenue to $ 503 million. SCI, which has been forced to scale back its’ fleet expansion plans amid depressed market conditions and continued over capacity on major trade lanes, currently operates a fleet of 73 vessels with a total cargo carrying capacity of around 5.8 million tons.
Container lines’ reliability still down
Despite recent improvements, global container lines’ schedule reliability and on time container delivery have been worse every month so far this year versus last year, according to a new report from SeaIntel Maritime Analysis, as bad weather and service restructurings have negatively affected performance.
Although container lines’ schedule reliability increased for the second month in a row in April, rising 1.5% points to 73.6%, it is still down 8.5% points compared with the same month last year, according to SeaIntel. Global schedule reliability in April was based on 10,367 vessel arrivals, SeaIntel said.
SeaIntel reported monthly data from INTTRA shows that global container delivery performance improved as well month-to-month, based on the delivery of more than three million containers globally in April. The timelines of container delivery increased to 56.2% in April, compared with 54.8% in March. However, year-over-year the performance remains 9.6% points below the level recorded in April 2013.
Port volume rises at India’s major ports
State owned major ports in India recorded moderate levels of container throughput growth during April and May, the first two months of the fiscal year 2014-15, compared with a year earlier, according to the latest traffic data released by the Indian Ports Association. Cumulative traffic for the two month period was estimated at 1.28 million 20 foot equivalent units, rising 3.5% year-over-year from 1.24 million TEUs. Containerised cargo tonnage grew 5.8% to 19.8 million tons from 18.8 million tons.
The volume of containers shipped via Jawaharlal Nehru Port Trust, also known as Nihava Sheva, climbed 3.6% to 719,000 TEUs from 694,000 TEUs. The west coast port, which is in the midst of a major capacity expansion, handles more than half of India’s total containerised export and import cargo. “We are hopeful that with export trade picking up, container movements will accelerate in the coming months, helping us meet targets set for the current fiscal year,” a JNPT official said.
Chennai Port, the country’s second largest box gateway, boosted volume by 3%, reaching 251,000 TEUs, compared with 244,000 TEUs a year earlier. Traffic at the eastern Port of Kolkata, which includes Haldia Dock, increased to 93,000 TEUs from 91,000 TEUs. Tuticorin Port, now renamed V. O. Chidambaranar, moved 90,000 TEUs, up 14% from 79,000 TEUs. Volume through DP World managed Vallarpadam Container Transhipment Terminal Cochin Port rose 13% year-over-year to 60,000TEUs.
The Indian Port Association said overall cargo tonnage at major ports surged 4.8% in April and May to 96 million tons from 91.5 million tons a year earlier. Of the top cargo gateways, Kandia Port led the way with throughput of 15.3 million tons, followed by Paradip at 11.7 million tons, Nihava Sheva at 11 million tons, Visakhapatnam at 10.4 million tons, Mumbai at 10 million tons and Chennai at nine million tons.
Spot rate at lowest point
There was no change in the Drewry benchmark spot rate from Hong Kong to Los Angeles this week, as the rate per 40 foot container continued at a 2014 low of $ 1,750 per FEU. The $ 1,750 per FEU spot rate is the lowest per container rate since mid December. Two weeks of exponential losses that totalled $ 250 per FEU erased all gains from a mid May general rate increase by members of the Trans-Pacific Stabilisation Agreement.
While a peak season surcharge is planned for next week, Drewry has reservations about predicting rising rates. “Drewry expects rates to rise on the back of the mid June PSS of $ 400 per 40 foot container requested by the TSA carriers, but quickly fade due to weak pricing discipline by carriers,” the company said. TSA members targeted a $ 300 per FEU increase with a CRI last month, but the result was a USD 150 gain in the spot rate from Hong Kong to Los Angeles, just half of the carrier’s goal. TSA members also scheduled an April GRI, which brought rates $ 130 higher, but again didn’t attain the proposed $ 300 per container increase.
[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).]