China downturn a concern for shipping

China downturn a concern for shipping

The downturn in export markets from China into Europe will plague the container shipping industry for the rest of 2015 and into 2016, according to one leading analyst. The latest import and export figures from Hong Kong and China made grim reading but forward indicators on new export orders from Chinese factories are perhaps even more worrying for container shipping lines. Bimco Chief Shipping Analyst Peter Sand said exports out of China specifically and Asia in general had been particularly weak so far in 2015 due to intra-regional issues led by China and extra regional issues led by Europe. 

“Firstly, the weakening of the Euro against the US dollar-pegged Yuan has tipped already weak European demand into negative territory, especially the demand from the southernmost parts of Europe, which has limited imports significantly as overall consumer spending has been low,” he told ‘Lloyd’s Loading List.com’. Containerised goods imported into Europe from the Far East dropped by 4.2% year-on-year in H1 2015. This is toxic news for the container shipping market that needs volume growth on the high volume trade lanes into Europe and the US in order to keep the cascading of tonnage going without hurting the freight market too much.

As volumes have now contracted while supply has gone up quite steeply, Far East to Europe freight rates are in loss making territory. At the same time, literally all of the other SCFI [Shanghai Containerised Freight Index] routes are currently at their lowest levels since 2009.Sand said this had prompted Asian economies with substantial export industries – led by China - to re-tune their growth engines to focus more on domestic consumption and less on investments and infrastructure construction, which is of concern to shipping.

 

Container shipping supply/demand gap unlikely to recover

Mega vessels are still making mega waves across the container shipping industry from carriers, ports and terminal operators to shippers and insurers as shipyards churn out increasing numbers of historically large vessels. The scramble to order so called ultra large container vessels has turned into a stampede, with 97 ships capable of carrying between 18,000 and 20,000 20 foot equivalent container units scheduled to be delivered by mid-2019, according to London based consulting firm Drewry. 

36 will join the global fleet this year, 12 in 2016, 22 in 2017, 22 in 2018 and five in 2019, all likely to be deployed in the troubled Asia-Europe trade. By the end of 2018, nine of the 20 largest ocean carriers will be members of the not so exclusive club, operating ships of this size, according to Philip Damas, Director at Drewry Supply Chain Advisors. At a time when the industry is facing an increasingly serious overcapacity, which is set to hit 10% in 2016, a level not seen since the global financial crisis in 2009, Damas told the JOC Container Trade Europe Conference in Hamburg in September.

It’s barely four years since Maersk Line, long the industry pacesetter, unveiled an order for 10 18,270 TEU Triple E vessels that will be that biggest ships you will see for some time, then CEO Eivind Kolding boasted at that time. The math of the mega ship has changed significantly since Maersk raised the bar. Shipyards are asking considerably less than the $ 190 million the Danish line paid for each of its initial 10 Triple Es. Maersk’s statement that the new vessels would allow the carriers to keep pace with container demand that is set to grow by 5 to 8% every year, belongs to a distant era. 

 

Difficulty for shippers with large container shipping alliances

The large container shipping alliances are making it increasingly difficult for shippers to spread their cargoes across several carriers to mitigate risk, according to Bjorn Vang Jensen, Vice President Global Logistics for Electrolux. During a panel on alliances at TPM Asia Conference, Vang Jensen said shippers were being forced to put too many eggs in one basket. He gave two examples of ship accidents that affected Electrolux cargo and illustrated the difficulty in spreading the risk. 

“I have containers on a ship being towed to Hong Kong after a fire in the engine room that are travelling on three different bills of lading, he said. I know this through our GT Nexus service provider, but there are other shippers I know that days later are still waiting to hear from one or two of the carriers under whose bills containers are being carried. I have yet to hear from the third carrier that I have containers on board that have been delayed because of a fire.” 

In another example, Vang Jensen told delegates that last year that a Hamburg Sud and UASC vessel collided in Port Klang and both vessels caught fire. “Hamburg Sud called me and said don’t worry about it, you have 11 containers on board and they are safe. But I had 198 containers on that ship travelling under four different carriers’ bills of lading. That constituted 50% of our Christmas sales in Brazil that eventually arrived on 22 December. On the procurement and operations side, we take great pains to make sure we nominate a wide range of carriers, even on a per-corridor basis, precisely because we want to manage our risk.”

 

MSC Maya 19,224 TEUs world’s largest vessel

MSC welcomed 500 guests to the new MPET Container Terminal, in the port of Antwerp, to celebrate the christening of MSC Maya. The fourth Oscar class containership of 19,224 TEU is named after Maya Aponte, the four year old daughter of Mr. Diego Aponte and Ela Aponte. MSC Maya follows the recent deliveries of MSC Oscar, MSC Oliver and Msc Zoe, which are all named after the grandchildren of the company’s founders Gianluigi Aponte and Rafaela Aponte.

Addressing the guests gathered on the quayside MSC’s President and CEO Diego Aponte said that Belgium holds a special place in the hearts of the Aponte family. Aponte explained, “MSC was founded in Belgium in 1970, my parents had a single conventional ship and five thousand US dollars.”

 

G6 Lines omit sailing between Asia and Europe/Mediterranean

The G6 Alliance plans to omit sailings from Asia to the Mediterranean and North Europe in November and December in response to expected low demand. The blanked sailings are the latest in a series of service cutbacks by carriers struggling to maintain rates in markets where the introduction of large new ships has caused capacity to outstrip demand. The 2M Alliance of Maersk Line and Mediterranean Shipping Co., announced plans to reduce sailings to Asia-Black Sea services. 

Last month, G6 members announced reductions in Asia-North America services during the slack winter season. Rates on Asia-Europe routes, where container lines deploy their largest ships, have plunged below break-even levels for carriers. Asia-Europe spot rates fell to USD 233 per 20 foot equivalent unit last week, 67% below year ago levels, according to the Shanghai Containerised Freight Index, which can be found on JOC.com’sMarekt Data Hub. 

The SCFI’s Index for Asia-Mediterranean rates tumbled 20% last week to an all time low of $ 195 per TEU, down 77.5% since the beginning of September. The G6’s Asia-Europe service cutbacks were detailed in an advisory by Orient Overseas Container Line, a G6 member along with APL, Hapag-Lloyd, Hyundai Merchant Marine, Mitsui O.S.K. Line sand NYK Lines. 

 

Port congestion not only due to mega ships

The problem of port congestion cannot be solely attributed to mega-ships and should be addressed through better industry collaboration and fundamental change across the supply chain. While mega-ships are often blamed for causing port congestion, other factors may be just as critical, including long standing practices like bunching ship calls together at ports. Following analysis of data sources developed by HIS Maritime & Trade, Lane found that out of 49,000 calls to 27 major Asian ports in 2014 just 12% of vessels were above 10,000 TEUs in size and the larger ships accounted for 22% of total volume. 

Clearly mega-ships are not the major part of the problem, although vessel size may become a bigger part of the problem in the coming years. While vessel size increased significantly over the past two years, terminal productivity has not, leading to concerns over ‘potential for congestion’. Analysis of HIS data related to quay crane use at the world’s 12 largest ports showed crane utilisation rates currently averages around 48%. 

If these ports were to raise that to 60% and coupled with a crane speed increase from 28 to 32 moves per hour, neither of which are really stretch targets, it would generate 44% extra capacity. Given cranes cost in the region of USD 10 million each, this would result in a very large increase in return on investment of capital equipment, with a value of more than USD 1 billion per year. 

(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).)