Maritime Market Updates

Monday, 21 January 2013 00:00 -     - {{hitsCtrl.values.hits}}

Slow steaming container ships – are shippers supply chain losers?

A study carried out by Erasmus University, Rotterdam, analysing four round trip routes has found that shipping lines can achieve a fuel cost saving of up to US$ 67 million and a further US$ 6 million in emission costs if all ships in their round trips slow to 15 knots.  

Operating a 10,000 TEU container ship at 18 to 20 knots instead of the designed optimum speed of 20 to 25 knots can deliver daily saving of 175 tons of bunkers. Super slow steaming at 15 to 20 knots can provide an additional 100 tons per day. This cost saving is significant with bunker prices at US$ 600 per ton.  

When shipping lines placed ships on slow steaming in 2007, the emphasis was to reduce emissions, as for every ton of fuel saved, the industry reduces its CO2 emission by three tons. Shippers were however not convinced by the green argument as the primary reason for shipping lines to slow their ships was to save costs on fuel price which had escalated up to 50% of vessel operating costs.

The study further indicates that for shippers and consignees, the additional cost that inventory accrues on water adds up to almost US$ 170 million, based on a price per hour waiting time, considering factors such as insurance, interest and depreciation. The research concluded that “the cost for shippers and consignees are most of the time higher than the possible benefits for carriers.” However, some shippers like Boots and ASDA have indicated that due to increased passage times, slow steaming has benefited with improved schedule reliability.

A Maersk Line spokesman says, “On our Daily Maersk service, customers are realising monetary benefits in their supply chains due to reliability and frequency of the service, even in a slow steaming scenario.”

More shipping lines eye ultra large ships

A Japan based ‘K’ Line is in discussion to build five ultra large container ships which could be new buildings or a lease deal. Meanwhile, United Arab Shipping Co. has also approached numerous shipyards to build ultra large container vessels which may include vessels up to 18,000 TEU. In the event UASC decide to order 18,000 TEU vessels, it would be the first to follow Maersk Line which will take delivery of its first triple E-class vessel this year.  

Shipbrokers indicate that when ‘K’ Line’s CKYH Alliance partner Yang Ming places orders to charter five 14,000 TEU container ships with options for five more from 2015, the plan for the Taiwanese Yang Ming Line was to control five whilst the optional ones was to be operated by Alliance member ‘K’ Line.  Yang Ming Line was finalising an agreement to charter at least five mega ships from Seaspan which would in turn place a new building order at Hyundai Heavy Industries at slightly below US$ 110 million a vessel.

Banks become tough on shipping in 2013

With values of ships expected to fall further and the cost of regulatory compliance to increase, International Accountant and Shipping Consultant Moore Stephens said, “Banks will exert more control over the shipping industry in 2013.”

“Operating costs are going to go up, and like a commuter, another increase in rail fares and not extra money coming in, shipping will most likely have to absorb the cost of more expensive fuel, more costly labour on the back of declining freight income. Restructuring, deferred payment, impairment and provision have become common coinage in shipping,” said his partner Julian Wilkinson.

Despite the increase in scrapping level of vessels in 2012, there is still a considerable gap between the supply/demand imbalance.

Ray of hope for Asia-Europe container trades

With trade volumes expected to increase by 4 to 6% in 2013 and shipping lines keeping capacity in check, Containerization International is predicting a modest rise in freight rates on the Asia-Europe container trades.  

During the fourth quarter of 2012 with a 4% decline in cargo volumes, ship utilisation fell to approximately 81%. Although trade volumes are expected to increase, larger vessels coming on stream will result in slot capacity to expand and load factor not being able to achieve more than 80% over the next 11 months.

Drewry World Container index increased by 13.8% last week to US$ 2727 per FEU, from  Shanghai to Rotterdam. In the troubled Asia-Mediterranean trade, there was a significant gain of US$ 342 per FEU from Shanghai to Genoa.  

It appears that blanking or voiding of voyages has had its desired effect with ships leaving Asia to Europe, having an utilisation factor of 95% ahead of the Chinese New Year commencing on 10 February.  Maersk Line North Asia Chief is on record, saying, “Balancing supply and demand is the game we need to play again in 2013.”  

He said the company was on a “roller coaster”, referring to the US$ 600 million loss sustained in the first quarter of 2012, only to be turned around in the third quarter by the posting of US$ 500 million profit.

Meanwhile, indications show that carriers have managed to retain around 77% of the US$ 350 TEU GRI they announced to North Europe and 91% of the US$ .475 TEU increase of the Mediterranean which came into effect in mid-December 2012.  

Reduction in capacity combined with blank sailings may provide the impetuous for carriers to push through GRIs in the months ahead.  Though the Chinese New Year holiday is likely to provide “a rush of bookings,” it will be interesting to see if capacity would be tight to sustain the proposed rate increases.

Jobless ships will grow

There are currently around 300 container ships laid up around the world equating to approximately 800,000 TEU or 5% of the total global cellular fleet. At the height of the shipping crisis during end 2009, beginning 2010, there were more than 600 container ships laid up. Though shipping lines have witnessed rate increases over the last few weeks, which will further accelerate during pre-Chinese New Year, the demand capacity imbalance however will propel shipping lines to curtail capacity through idling of ships.

Proposed merger between Hapag Lloyd and Hamburg Sud: Will it materialise?

The announcement was by both carriers on 18 December 2012 that they were investigating the possibility of a merger, and if materialises, will result in a mega carrier with a fleet of 250 vessels yielding an annual revenue of US$ 13 billion.  

Presently, Hapag Lloyd ranks sixth with a container market share of 3.8% and Hamburg Sud is at 12th with a 2.5% market share. The combined capacity of these two carriers will reach 1.5 million TEU, accounting for 6.2% of the global capacity. Maersk Line, the world’s largest carrier, currently has 15.4% market share with a total capacity of 2.6 million TEU.  

MSC, the world’s second largest carrier, has a market share of 13.3% with 2.2 million TEU and CMA-CGM ranked at number three has 8.3% with 1.4 million TEU. This is not the first time that the two German carriers, combining more than 300 years of liner history, have discussed a possible merger which was once described as a dream team.  

Indications show that with Hapag Lloyd and Hamburg Sud presently cooperating in eight vessel sharing agreements and more than 10 slot charter agreements, the possible merger could become a reality.

The worlds’ busiest port, Shanghai poses marginal growth

Container volumes at the Port of Shanghai, considered the busiest in the world, increased 2.5% to 33.5 million TEU in 2012. In a statement, the Port said, “The company made concerted efforts to overcome the adversaries of global economic slowdown, achieving the annual operation target, maintaining a stable increase in operational quality and a wholesome financial position.”  

The net profit of the Port however, increased by 4.2% to US$ 773 million during the period under review, which was partially driven by new value added tax policies announced by the Government of China. The government only owns 41% of the Shanghai Port.

(The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK) and a University of Oxford Business Alumni. He can be reached via email [email protected].)

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