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Container carriers cancel September sailings
The G6 Alliance has announced the cancellation of four Asia-Europe sailings in September as carriers on the poorly performing trade route struggle to achieve profitability with a surplus of capacity and low demand. In what it called a ‘response to changes in market demand,’ a joint statement from the carriers said the voided sailings were part of a continuous review of services. Two services were scrapped in June. The services to be cancelled by G6 Alliance members APL, Hapag-Lloyd, Hyundai Merchant Marine, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and Orient Overseas Container Line.
OOCL is one of the few container lines that has been able to achieve profitability in the recent past, but even the Hong Kong carrier is struggling on the Asia-Europe trade. In its operational update OOCL reported that revenue on its Asia-Europe segment tumbled by 28% in the second quarter, more than doubled the near 12% slide in traffic. Freight rates have hit record lows in the second quarter and while OOCL did not list the revenue per TEU on the individual trades, the overall revenue per box fell by 7.4% compared to the second quarter of 2014. Analysts believe the break even freight rate per TEU on Asia-Europe is USD 800.
Maersk Line also to reduce Asia-Europe capacity
Lower than expected demand on the Asia to Europe trade will see Maersk phase out one of its core services late this month. Lars Jensen, Chief Executive Officer for the Asia Pacific region at Maersk Line, told Lloyd’s Loading List.com that volume growth on the critical trade artery from Asia to Europe had been less than expected so far in 2015. “We are in peak season now, but we’ve seen in Q2 that demand into Europe has slowed and our expectations for global growth for 2015 are a bit down,” he said.
“Our latest figures for July show trade to Europe was down compared to 2014. Our loadings have increased during the peak season over the last few months, but it has been a bit lower than anticipated. From the middle of next month this will see the cessation of the AE9 loop, which will be replaced by a seasonal service as part of Maersk’s East West Network optimisation process, which was announced in mid August.” Jensen said the new schedule would enable better capacity utilisation in peak and low seasons.
He also said shipper demands for improved service quality were not always supported by a willingness to pay extra. “We tried this with Daily Maersk, but we had to back off because it turned out very quickly that while customers wanted reliability and stability they weren’t willing to pay for it, said Jensen. May Daily Maersk was a bit ahead of its time. Customers didn’t want to pay for it. So we took it off the shelf.”
Ultra large container ships results in congestion
Northern Europe’s ports are suffering from under utilisation and congestion at the same time, as ultra large containerships and unreliable schedules play havoc with port operations, according to a new report from Dynamar. A survey of 17 ports, comprising 55 container terminals, found throughput rose 5% in 2014 to 53m TEU. At the end of 2014 however, combined container handling capacity stood at 86m TEU resulting in an occupancy rate of 62%. While the under utilisation of the facilities runs counter to claims of congestion, Dynamar points out that demand for terminals does not come in regular patterns. Even the largest ships remain prone to the elements, which are sometimes causing havoc to schedule integrity, Dynamar said. Early in the year, nearly a third of more than 9,900 vessel arrivals were off schedule. Delayed ships may bunch up in their next northern European port, which will work through further in their schedule. A certain amount of overcapacity may be considered a requirement to prevent congestion, Dynamar said.
The general consensus was that congestion would kick in when utilisation reached 75%. The problem is exacerbated by the increasing size of containerships calling at Northern European ports. Few ports were built with ULCs in mind. The first 18,000 TEU ships were delivered only two years ago, but the number of this size of ship will reach over 100 by the end of the decade.
Moreover, all of these vessels will be operating on the Asia-Europe trade lane. This is putting pressure on terminal operators to invest substantially in the cranes and equipment needed to handle ULCs. The consensus among big ship carriers at present is that terminals should handle 6,000 moves a day on a ULC, Dynamar said.
The universal consent among stevedores is that a production of 3,500 moves is a more realistic maximum. Dynamar points out that vessel’s such as UASC’s Barzan, with its two island configuration, can only be offloaded by two more cranes than can be used on an 8,000 TEU ship. Larger cranes with longer outreach weigh more and therefore need stronger quaysides to support their weight.
Spot market rates far from victorious
China is celebrating Victory Day to commemorate 60 years since Japan signed the official documents to surrender in World War II, effectively bringing an end to the war. The national holiday means that the publication of the Shanghai Containerised Freight Index has been brought forward this week. However, as Freight Investor Services broker Richard Ward says, it won’t feel like a victory for carriers operating the Asia-Europe trades.
Combining freight rates on today’s and last week’s index, carriers only managed to achieve $ 294 of their recommended general rate increases of between $ 950 and $ 1,250, highlighting once more the difficulties they face in trying to implement price hikes in respect of the current imbalance between supply and demand. The latest SCFI shows that rates on the Asia-North Europe trade rose 29.1% or $ 172 to $ 763 per TEU, while those to the Mediterranean from Europe climbed 24.1% or $ 168 to $ 865 per TEU.
The worry now for lines operating the route is whether they can ensure that rates sustain their current level, especially when you consider that peak season demand is by all accounts much lower than expected and average utilisation levels are hovering in the low 90s. With the next round of GRIs due at the start of October just weeks before China’s Golden Week, marking the end of the peak season, carriers will hope that their latest move to cut yet more capacity will have the desired effect and ensure that these GRIs don’t follow the same fate as this weeks.
Energy saving container ship windshield
Mitsui O.S.K. Lines is testing a container ship windshield that the Japanese carrier hopes will reduce wind resistance, save fuel and reduce carbon dioxide emissions by an average of 2%. The horse-shore shaped windshield was installed on the bow of the MOL Marvel, a five year old ship that has capacity of 6,700 20 foot equivalent units. The windshield encloses the front line of stacked containers on the ship’s bow.
In addition to reducing wind resistance, the device is expected to protect ships from water coming over the bow during had weather. MOL said it expects an annual 2% reduction in carbon dioxide emissions when operated on a 6,700 TEU ship plying a North Pacific route at 17 knots. Naval architects have worked for years to design hulls that minimise water drag and reduce fuel consumption. As container ships have gotten larger and more rectangular containers are stacked above deck, vessels’ wind resistance has increased.
Wind tunnel tests were used to design to maximise the MOL windshield’s wind resistance reduction while minimising its weight and providing enough strength to meet Class NK rules for absorbing wave impact. The windshield was developed with MOL Techno Trade Ltd., Ouchi Ocean Consultant Inc., Akishima Laboratory and the University of Tokyo with support from Class NK’s research and development program.
China factories, manufacturing declines
China’s manufacturing output contracted for the sixth consecutive month in August as two purchasing manager’s indexes confirmed that the world’s second largest economy is deep in slowdown mode. The Caixin Markit manufacturing PMI reading fell to 47.3 in August, down from July’s 47.8 and hitting the lowest level in six years, while China’s official PMI, which covers state owned enterprises and large companies, was 49.7 points. The Caixin reading looks at small and medium sized firms.
The final Caixin China Manufacturing PMI for August continued to retreat, with sub-indices signalling continued weak demand in the markets for goods and factors of production, said He Fan, Chief Economist at Caixin Insight Group. Recent volatilities in global financial markets could weigh down on the real economy and a pessimistic outlook may become self fulfilling. Total new orders and new export business both declined at sharper rates than in July and contributed to the most marked contraction of output since November 2011, Caixin Markit said in a statement.
