Maritime market updates

Cabotage law a barrier to world trade

The World Economic Forum has proposed the lifting of supply chain barriers to enhance global trade. In its report, it has identified four key areas for the freedom of the global supply chain – market access, border administration, transport and communication, infrastructure and business environment.  

The report also states that by reducing supply chain barriers global GDP could be increased by US$ 2.6 trillion or 4.7% and exports by US$ 1.6 trillion or 14.5%. In contrast, removal of tariffs could raise global GDP by US$ 0.4 trillion or 0.7% and exports by US$ 1.1 trillion or 10.1%.  

The report which refers to Maritime Shipping, says cabotage – the movement of goods between two points within the country’s border by its own flagged vessels complicates logistics and increases the cost.  

According to Alphaliners, domestic cabotage trades worldwide absorb a total of 550,000 TEUs in container shipping capacity. China has the largest cabotage fleet which accounts for 45% of the total worldwide figure with Indonesia following recording 24%, while the US comes next with 10% and Brazil the fourth at 9%.

Forwarders fined for price fixing

As confirmed by the US Department of Justice, two Japanese freight forwarders have agreed to pay fines totaling US$ 18.9 million for conspiring to fix prices. According to the indictment, the two companies engaged in a conspiracy to fix and to impose certain freight forwarding service fees for services provided from Japan to the US between September 2002 and November 2007.  

The pleas made by the two freight forwarders brings the number of firms that have either admitted guilt or agreed to plead guilty to 16 service providers with fines totaling more than US$ 120 million. In March 2012, the European Commission fined 14 freight forwarders a total sum of 169 million euros for operating a freight cartel on several routes.

Rate increases successful

The latest round of West-bound freight increases between US$ 600 and US$ 775 per TEU from Asia to Europe according to all in spot rates published by Shanghai Container Freight Index has been holding on.  Though spot rates have increased per TEU from Shanghai to North Europe by US$ 424 to US$ 1423 to the Mediterranean from US$ 960 to US$ 1366, the question that is being posed is whether these rate levels will stick this time.  

The factors attributed to the above success are the rise in European imports from the Far East (2.6%), tight space to Asia due to skipped round trips, shipping lines delaying commissioning of new ultra large container ships. As indicated in Dynaliners, Maersk Line is expected to cap the capacity of its first four 18,300 TEU Triple E ships to the level of its eight 15,600 TEU E Class vessels.

The line plans to place its Triple E class ships between Asia-Europe and the vessels are being commissioned at a challenging time with volumes shrinking 5% in 2012 and are expected to grow by only 1% in 2013. Triple E class vessels are expected to consume 35% less fuel than the 13,000 TEU ships that would be replaced. Triple E Class vessels are expected to stay in a port for two hours longer than that of an E class.

Number of container lines to shrink

At the recently concluded Container Supply Chain Conference (TOC) in Hong Kong, Seaintel maritime analysts said that consolidation would shrink the number of global shipping lines to eight by 2025 as the industry can no longer support 20 major global ocean carriers.  

Competition has forced lines to order more, bigger ships for fear of losing market share and the analysts predicts up to 165 new orders of 13,000 TEU to 14,000 TEU vessels within the next two years. Despite ships been larger, finding volumes have been a challenge.

As indicated by Modern Terminals in Hong Kong: “Ports handled bigger ships which increased in size by 3.2% since 2009 but the ports handled 2.8% fewer moves per call.  These numbers mean inefficient use of our terminal assets.”

Krishnapatnam, Kattupalli Ports in India vie for transshipment containers

The ports of Krishnapatnam (KPCT) and Kattupalli on the east coast of India may receive the waiver of the cabotage policy under the Merchant Shipping Act 1958 for transshipment of export/import containers which will enable the ports to vie for transshipment traffic moving to and from Haldia, Calcutta and Chittagong.  

Described as all weather ports with no tidal restrictions, KPCT is located about 190 kilometres off Chennai and closer to Nellore, while Kattupalli Port is about 30 kilometres from Chennai port. In the event the Government of India approves the relaxation of the cabotage law to the aforesaid ports, there would be three ports in South India including Vallapadam, Cochin with the ability to cater to Indian Sub Continent transshipment traffic.

Will US ease up on ‘By America’ at transpacific talks?

Transpacific partnership is a would be Regional Free Trade Agreement amongst the US, Canada, Mexico, Chile, Peru, Australia, New Zealand, Singapore, Malaysia, Vietnam and Brunei, with Japan expected to join, and Canada is pressurising the US with the other countries to ease up on its ‘by America’ policy with a view to promote trade.  

The Canadian Trade Minister said: “The provisions not only have a negative impact on Canada, but also on American business dependent on integrated supply chain.” It has been argued that whilst the US policy is aimed at boosting jobs, they in fact increase costs for many American companies.  

In 2009, the Economic Stimulus Act promulgated by the US necessitated projects to use iron, steel and manufactured goods made in the United States. Canada, America’s biggest trading partner, is concerned about possible proposals in Congress to include similar provisions in new infrastructure project legislation.

2,000 British maritime jobs at risk

According to a report commissioned by the UK Chamber of Shipping, achieving European Union’s low sulphur fuel targets threaten 2,000 British maritime jobs. The report said: “This will threaten the viability of some shipping routes, forcing them to reduce or even shut down services all together. Meeting targets by 2015 will result in more trucking placing maritime jobs at risk and will result in more highway carbon emissions and road congestion.”

53’ containers not economically viable

Due to difficulties in finding sufficient suitable US export cargo, APL does not offer ship space for 53’ containers on its transpacific services. Revenue from Asian East bound traffic is insufficient to cover the cost of empty re-positioning. Though 53’ containers are used in the US domestic shipping industry, they are hardly used outside USA.

Will Vizhinjam Port finally take off?

The planned container transshipment terminal at Vizhinjam Port in the state of Kerala, India has been referred to International Finance Corporation (IFC), which is carrying out an Environmental Impact Assessment (EIA) on the project.  

Considered the first green port in India, it will have a quay length of 2,000 metres in three phases. The port will cost US$ 750 million and will have dedicated railroad links and a 250 metre bunkering berth.  Going by bureaucratic and infrastructure bottlenecks the Vallapadam, Cochin transshipment terminal had to sustain, finding investors to develop this facility will be a daunting task.

The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK) and a University of Oxford Business Alumni.  He is also a NORAD /JICA Fellow