MSC to make Mundra a transshipment hub in India
Adani Ports and Special Economic Zone announced it reached an agreement with its terminal joint venture partner Terminal Investment Ltd., a subsidiary of Mediterranean Shipping Co., to consolidate operations at Mundra, as India’s biggest port operator positions itself for further growth under new CEO Karan Adani. The two partners agreed to extend their existing joint facility, dubbed Adani International Container Terminal, by 2,132 feet to 4,790 feet, expanding its annual capacity from 1.5 million 20 foot equivalent units to 3.1 million TEUs.
The terminal will also have 15 super post-Panamax quay cranes, capable to handling 18,000 TEU ships. With this expansion, Mundra will emerge as a transhipment hub for the Middle East, South Asia and India. It will also make Mundra the largest container port in India with a cumulative capacity of 6.6 million TEUs and will help in achieving our vision of handling 200 million metric tons of annual cargo by 2020, Adani said in a written statement.
The planned expansion is targeted for completion in 15 months, according to the joint press release. “We are pleased to partner with Adani on this terminal development and the expansion of AICT. We are confident that Mundra will become a major transshipment hub within South Asia,” said MSC CEO and President Diego Aponte, unveiling the new investment.
The expansion will also exclusively position Mundra as the largest container port in the country with four state-of-the-art container terminals, the joint statement said. The 50:50 venture which was set up in 2013, has helped Mundra grow its throughput at a rapid pace, as MSC has been using AICT for its transshipment traffic activity in the subcontinent region. The joint facility saw its volume jump by 34.3% in the first fiscal half through the end of September to 547,935 TEUs.
Mundra Port, about 300 nautical miles from Jawaharlal Nehru Port Trust, includes port owned Adani Mundra Container Terminal and DP World managed Mundra International Container Terminal.
Contract rates follow spot market decline
Ocean freight rates for cargo moving under contracts on the major East-West trade routes continued to decline in the last quarter, according to Drewry’s Benchmarking Club that tracks a group of multinational retailers and manufacturers that monitor their contract freight rates. The index based on trans-Pacific and Asia-Europe contract freight rate data provided confidentially by shippers, fell 5% between August and November on top of the sharp decline during the third quarter for 2015.
Spot rates also fell to near record lows in the last quarter. As expected, contract rates reduced further through the latter part of 2015, as the effect of falling fuel costs and continuing overcapacity weakened market rates, said Philip Damas, Director of Drewry Supply Chain Advisors. The reduction in contract rates was driven by a combination of lower fuel costs, excess vessel capacity and intensive competition between shipping lines. Bunker costs tumbled compared to the fourth quarter of 2014 and this contributed to a reduction in contract rates negotiated over the course of last year, Drewry said.
The fall in the analyst’s contract rate index between February and November 2015 was as much as 14%. Some of the fall in contract rates was the result of carriers granting shippers temporary reductions in contract rates to secure cargo, Drewry said. The logistics manager for a large Asia-Europe shipper told JOC.com that he held back around 20% of container volumes from contracts and he shipped that cargo on the spot market. He said with rates falling to record lows in 2015 this strategy paid off handsomely as the spot rates were well below the contracted rates.
However, he said shippers had to be careful playing in the spot market as cargo moving under cheap rates was the first to be rolled over by carriers when space tightened up. Drewry also warned about using spot rates for a proportion of volumes. It is believed up to 70% of all containerised cargo on Asia-Europe moves under contract, either annual, six or three month periods.
Lay-up/idle container vessels zoom up to 1.3 million TEUs
After a mid-December dip (mainly because of the scrapping of some idle units), the laid-up box ship fleet started rising again, according to data from Alphaliner. On 28 December, it reached 331 units with a combined capacity of 1.36 million TEU. This is 25 ships/27,700 TEU more than two weeks earlier. In all, from modest numbers (116 ships/239,500 TEU/1.3% in mid-January 2015), the idle fleet started growing fast indeed from the end of July (127/345,900/1.8%).
It reached this year’s zenith on 30 November with 329 ships/1,397,200 TEU/4,200 TEU average, accounting for a share of 7% of the existing box fleet. This is a lot, but still less than the absolute lay-up ‘record’ of 572 ships with a total capacity of 1,520,000 TEU (2,700 TEU average) as of December 2009, making up for a share then of 11.7%.
More idle capacity required for rate recovery
Container shipping companies will have to idle vessels at a more substantial rate than in 2009 and most of such capacity will have to remain inactive to ensure a more sustainable recovery in freight rates, according to Denmark based SeaIntel Maritime Analysis. SeaIntel said that current rate levels of the nine deep sea trades covered by the Shanghai Shipping Exchange’s Shanghai Containerised Freight Index are below the levels seen during the 2009 financial crisis except for the trans-Pacific rates.
When freight rates bottomed out in 2009, carriers sought to idle vessels in the range of 10% - 15% of the global tonnage, according to the latest SeaIntel Sunday Spotlight. As a result, rates surged in 2010 and the year saw the highest freight rates recorded for eight of the nine deep seas trades covered by the SCFI. That year also saw the biggest year-on-year increase in the average freight levels so far. The SCFI tracks spot rates of shipping containers from Shanghai to 15 major destinations in the world.
Sample data for SCFI calculation are collected form a panel of 41 liner companies and freight forwarding firms. Massive overcapacity, weaker trade demand and low freight rates have plagued the global container shipping sector. Shipping lines have resorted to missed sailings and cost cutting measures to address the downturn. Idling of vessels, however, has yet to be ramped up to 2009 level. With 1.7 million TEU having been delivered in 2015 and global demand growth in the range of 0%, it is clear that more substantial idling of tonnage would be necessary to stage a recovery, SeaIntel said.
If we were to see a resurgence of rates in 2016, this would have to be driven by a much more substantial idling of capacity post-Chinese New Year, SeaIntel added. The Chinese Lunar New Year begins on 8 February. If carriers stage a rate recovery similar to 2010 by idling sufficient capacity, this would mean an additional combined revenue of $ 13 billion this year.
China tough on misreporting container lines
Beijing has tightened law enforcement around container companies for rate filing irregularities, amid continued efforts to reduce shipping surcharges and boost the country’s falling exports and imports. The Ministry of Transport (MoT) earlier this week fined eight container carriers Yuan 1.5 m ($ 231,157) for not reporting or misreporting charges under its box line freight rate registration system, with Cosco Container Lines and Maersk Line among the violators. The system has always been there, but the enforcement seems much stricter this year, a source form Shanghai Shipping Exchange told Lloyd’s List.
China established a nationwide freight rate registration system for international container companies in 2009 and appointed SSE to help receive and monitor the filings of freight rates. IN 2013, the MoT improved the system by requiring shipping linesto provide details on additional charges, including terminal handling charges and documentation fees, in their reports. As a result, carriers will be now subject to penalties should any of these items be found to be priced differently from what had been earlier reported.
While some firms have not been strictly adhering to the new regulations by reporting their surcharge rates, the central government appears to be taking violations more seriously this year, fuelled by the country’s dismal trade statistics. We found some carriers companies raised their THC without first reporting to the authorities and which was not in accordance with what they had filed, the MoT said in a notice. They subsequently requested the carriers to implement self-regulatory measures and to report the results to the SSE within 35 days.
It added that would launch follow up inspections and punish the players that failed to make the rate amendments. Then in October, the ministry issued another notice, once again ordering container carrier companies to trim additional fees, as part of Beijing’s drive to cut exorbitant charges in the processing of export and imports. Soon after that, 12 world leading carriers, including Maersk Line and CMA CGM, decided to comply with the government’s request to cut a series of charges for items such as documentation and telex services.
The penalties announced this week were based on a probe late in August at the ports of Shanghai, Qingdao and Shenzhen, according to the MoT.
(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).)