Global companies in retreat, a threat to shipping

Global companies in retreat, a threat to shipping

As stated in ‘The Economist’ among the many things that President Donald Trump dislikes are big global firms. Faceless and rootless, they stand accused of unleashing carnage on ordinary Americans by shipping jobs and factories abroad. His answer is to domesticate these marauding multinationals. Lower taxes will draw their cash home, border charges will hobble their cross-border supply chains and the trade deals that help them do business will be rewritten. To avoid punitive treatment, all you have to do is stay, he told American bosses this week. Trump is unusual in his aggressively protectionist tone. But in many ways he is behind the times. 

Multinational companies, the agents behind global integration, were already in retreat well before the populist revolts of 2016. Their financial performance has slipped so that they are no longer outstripping local firms. Many seem to have exhausted their ability to cut costs and taxes and to out-think their local competitors. Trump’s broadsides are aimed at companies that are surprisingly vulnerable and in many cases are already heading home. The impact on global commerce and shipping will be profound.

Will contract shipping rates increase?

The strength of recent eastbound trans-Pacific spot rates has emboldened carriers to push for higher 2017 contract rates, but it is unclear what success the carriers will have. US importers setting up meetings around the 17th Annual TPM Conference are getting hit with a barrage of mixed signals, complicating their appraisal of just how much power they will have in trans-Pacific service contract negotiations. 

They know carriers are still limping after deep 2016 losses, some $ 13 billion for just 12 of the top 25 operators in the third quarter, according to analyst Dyanmar. Shippers also have to square knowing that carriers don’t want another disastrous round like last year, when major shippers walked away with rates as low as $ 750 per 40 foot container from China to the US West Coast. But with containerised trade growth slowing and more ship capacity coming online despite the stalling of new orders, just how much leverage will carriers have? The industry should at least be prepared for potentially higher rates even if the myriad of moving gears makes it difficult to discern what could happen. 

Trans-Pacific carriers are stretched far beyond disappointing service contracts. Rates form Shanghai to the West Coast were down 15% last year versus 2015 and were down 33% to the East Coast, based on a recent BIMCO analysis of the Shanghai Containerised Freight Index. Overall rates on routes tracked by the SCFI were down 7%. Trans-Pacific contract rates for some shippers were in the low $ 700 per FEU range, according to a JOC survey of importers and carriers, a historic low. Some carriers mitigated such deals by dividing a shipper’s minimum quantity commitment by 52 weeks and declaring any weekly volume above that to be out of contract and moving at a higher rate. (JOC)

Now container terminals seek alliances

Terminal arms of Ocean Alliance members are drawing closer together. Cosco Shipping Ports signed a Memorandum of Understanding with the terminal operating arm of CMA CGM with a focus on increasing efficiency at ports and terminals called at by the four members of the Ocean Alliance. The MOU Cosco Shipping Ports signed in Shanghai with CMA Terminals Holdings covers cooperation in businesses and services at ports worldwide as the Chinese company continues to expand business overseas in an environment of slower growth at home. 

Both sides wish to create more opportunities in global port investment and operation, said a statement from France-Headquartered CMA CGM that did not provide further details on the agreement. Taiwan’s Evergreen Line and Hong Kong’s Orient Overseas Container Line are the two other members of the Ocean Alliance, which will launch in April. The Ocean Alliance will control around 350 vessels and 3.5 million 20-foot-equivalent units in capacity. Its members controlled 26.6% of Asian imports to the United States in 2016.

Cosco China Shipping group is a key instrument in plans by the government of the world’s second-largest economy to develop transportation, trade and resource interest overseas. CMA CGM has also expanded its international presence via its 2016 acquisition of APL, the container terminal unit of which has facilities in the US, Japan, China, Vietnam and a 20% stake in the new Rotterdam World Gateway terminal. (JOC)

Asia-Europe spot rates may stabilise

The level of decline in Asia-Europe spot rates following Chinese New Year will be an indicator of the balance between supply and demand on the trade. There was little change in the Shanghai-Europe and Mediterranean spot market this week as factories closed and the long Chinese New Year holidays got under way. Cargo that is not already on the water will be waiting at least another week with most forwarding offices closed and hundreds of millions of people heading home on places, trains and automobiles. Shanghai-North Europe spot rates slipped just $ 11 to $ 1,041 per 20-foot-equivalent unit, while Shanghai-Mediterranean rates declined $ 18 to $ 986 per TEU, the first time since Dec. 23rd that the rate of Mediterranean ports has fallen below $ 1,000 per TEU, according to the latest reading of the Shanghai Shipping Exchange’s Shanghai Containerised Freight Index. 

New terminal to relieve Karachi congestion

The Karachi International Container Terminal is the first terminal Hutchison Port Holdings established in Pakistan. The long-awaited first phase of the Pakistan Deep Water Container Port, which will help fight congestion at the port of Karachi, has begun trial operations ahead of an official inauguration. South Asia Pakistan Terminals is public-private partnership between Hutchison Port Holdings and Karachi Prot Trust, under which the Hong Kong based company agreed to invest roughly $ 600 million. Karachi handles about 60% of Pakistan’s seaborne trade. 

The project was awarded to HPH in 2007 on a 25 year operating concession, renewable for an additional 25 years. When fully complete, the port will have four container berths with a total quay of 1,500 meters (4,921 feet), a draft of 18 meters, 210 acres of yard space and modern service equipment, including 12 quay cranes and 52 rubber-tire gantry cranes, providing an annual capacity of 3.1 million TEUs. The terminal had its first call last month with the APL Japan followed by the MSC Lucy Jan 17. 

Notably, the MSC Lucy was able to discharge and load more than 2,600 20-foot-equivalent units during its call at SAPT, with average gross berth productivity of 102 moves per hour and average gross crane productivity of 27.8 moves per hour, according to shipping sources in Karachi. The first phase comprising two berths originally had a 2011 opening, but has been pushed back repeatedly because of delays tied to construction of hinterland access roads and dredging.

Carrier woes continues

Shanghai and Hong Kong listed Cosco Shipping Holdings, previously known as China Cosco Holdings, revealed that it expects a net loss for 2016 of around CNY 9.9 billion ($ 1.4 billion), which is slightly worse than the CNY 9.2 billion it lost in the year before. (Cosco Shipping Holdings’ main assets are Cosco Shipping Lines, previously called Cosco Container Lines (Coscon), and Cosco Shipping Ports, previously Cosco Pacific.

Hyundai will receive around KRW 750 billion ($ 644 million) in financial assistance from a vessel financing entity recently launched by the government and known as Korean Shipping Corporation, which will buy ships from the carrier and charter them back. The carrier is expected to use the loans to increase its fleet size and invest in overseas terminals.

(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).)