LONDON: July 06, 2016. Shipping consulting company Drewry says container freight rates will rise over the next 18 months but will not be enough to rescue the industry from substantial losses in 2016.
In a new report it notes parallels between what is happening now and the 2008/09 global financial crisis as spot freight rate volatility reaches new levels while industry income falls to record lows.
Drewry estimates container lines have “signed away” US$10 billion in revenue in this year’s contract rate negotiations on the two main East-West trades. With trans-Pacific contract rates as low as US$800 per 40ft box to the US West Coast and US$1,800 per 40ft to the US East Coast, it said carriers “have done exactly what they did back in May 2009 in a desperate attempt to retain market share”.
With first quarter load factors at around 90 percent Drewry added there was no reason for carriers to leave so much potential revenue on the table.
“For 2017, Drewry anticipates a slightly brighter picture with global freight rates forecast to improve by about 8.0 percent,” declared Neil Dekker, Drewry’s director of container research. “Carriers are expected to take some action to address overcapacity as cash flow attrition becomes more urgent and BCO (beneficial cargo owner) rates rise from this year’s lows. But once again, this cannot be seen as a genuine recovery since these so-called improvements must be set in context against the unnecessarily big rate declines seen in both 2015 and 2016," he continued.
Drewry noted the recent decision by the G6 to take a weekly loop out of the Asia-North Europe trade as a positive move but said similar measures would be necessary “across other sick trades” if recent improvements are to gain momentum.
OSLO: July 07, 2016. Xeneta, the market intelligence platform for containerized ocean freight, says the widening of the Panama Canal may undermine rates for a segment already suffering from over capacity and cut-throat competition.
The Panama Canal extension, opened on June 26 (right), is meant to provide vessels carrying up to 13,000 TEU's access to U.S. East Coast ports and inland markets from Asia.
However according to Xeneta CEO Patrik Berglund the new short-cut could turn out to be more of a liability than a benefit: “Firstly, the neo-Panamax vessels have to attract trade to this fresh route, and this could initially force them to keep rates artificially low - the last thing the industry needs. Then we have the fact that more ships will be able to compete on the East Coast, potentially pushing rates even lower.
“This will most probably be exacerbated by the newly arriving fleets of 18-20,000 TEU megaships – MSC has four in the pipeline now – causing a cascading of existing tonnage onto attractive routes, like the East Coast. It all spells, what could be, an impending financial disaster for a segment currently defined by consolidation, new alliance-building, and on-going uncertainty,” he added.
A logistics specialist, professor Andrew Lubin from Rosemont College in Philadelphia, supports Berglund’s argument. He said that while 68 percent of current container traffic from Asia to the U.S. East Coast routes via the West Coast, some 10-14 percent could be diverted to Gulf and East Coast ports within the next 12 months.
“Faster transit times and the fact that carriers switching tonnage to the East Coast will now be able to avoid West Coast labor unions will boost vessel numbers and therefore competition,” he explained. “Increased competition has an obvious impact in the market - lower rates.”
OSLO: June 09, 2016. Xeneta, the market intelligence platform for containerized ocean freight, says the main reasons shippers cancel agreements with container lines is because of price, risk management and loss of trust.
“One might expect bad service to be the main reason for swapping supplier,” said Xeneta CEO Patrik Berglund “but that isn’t the case in container shipping. The current state of the industry, with huge capacity oversupply leading to collapsing TEU rates, has effectively created a price war, pushing cost ‘front of mind’ for anyone shipping large volumes of product."
Berglund said the average price of a 40ft container between Asia and North Europe has now fallen 45 percent since July 01, 2014 to reach US$1,487 and noted one client gave his top three reasons for switching carriers as “price, price and price”.
Xeneta has also discovered that some shippers shift trade lanes due to a significant volume increase on one lane and a decrease on another: “If you think of retailers that need to react to changing market demands, it’s imperative that their supply chain is both reliable and flexible. A carrier that can’t meet those criteria is simply too much of a risk,” explained Berglund.
Noting the loss of trust between shipper and carrier, he said some container lines price “strategically” to win market share, but then a few months into the relationship try to adjust their rates.
“In such a cut-throat segment, which seems to be in a constant state of flux at present, many of these carriers are fighting to survive,” he observed. “So it’s understandable they want to maximize rates wherever possible.
“However, shippers rely, and base their entire operational plans, on the information provided by their suppliers, such as guaranteed capacity, transit time and pricing, so the commitments that are made during the procurement process must be honored. If they don’t do that, they don’t keep the business,” Berglund concluded.
LONDON: June 08, 2016. According to The International Cargo Handling Coordination Association (ICHCA), less than 15 percent of 162 International Maritime Organisation (IMO) Member States have given shippers and operators in their jurisdiction guidelines for verifying the gross mass of containers (VGM) that becomes mandatory on July 01.
At a meeting in Antwerp last week Mike Yarwood, Claims manager for insurance specialist TT Club commented: “The recent IMO circular is rightly good news for those that are taking appropriate steps to prepare for July. It is not – and should not be considered in any way – a panacea for the unprepared.
“Sympathetic enforcement for a limited period allowing for cargo already in the supply chain and resolution of teething problems in no way steps away from the safety objectives of these VGM amendments,” he declared.
TT Club notes there was extensive stakeholder and international consultation leading to IMO’s adoption of the VGM amendments to SOLAS in November 2014.
Also speaking in Antwerp ICHCA Technical advisor Captain Richard Brough said: “As July 01 approaches we see an increasing number of terminal operators announcing the service options they will offer to shippers to facilitate determining the VGM of export containers. Lifting equipment suppliers, carriers, forwarders and, with a few exceptions, shipper representatives have all engaged positively in order to identify the most appropriate way to comply, whether by Method 1 or Method 2.
“Sadly, where compliance is a shared responsibility, communication between all the different parties has too often been acrimonious rather than collaborative. As a result – a month out – contingency planning is now crucial for all stakeholders, to avoid a potentially disastrous impact on container supply chains.”
ICHCA, TT Club, the World Shipping Council and the Global Shippers Forum will shortly issue a document: ‘Verified Gross Mass – Supplementary Industry FAQs’.
HAMBURG: May 13, 2016. A new version of the 'G6' ocean container group called 'THE Alliance' is to be formed for a minimum period of five years by Hanjin, Hapag-Lloyd, "K" Line, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and Yang Ming.
The six ocean carriers say their cooperation will begin in April 2017 subject to regulatory approval and cover all East-West trade lanes: Asia- Europe/ Mediterranean, Asia-North America West Coast, Asia-North America East Coast, Transatlantic and Asia-Middle East/Persian Gulf/Red Sea.
The new group will operate 620 ships with a combined capacity of 3.5 million TEU or 18 percent of the world's container fleet.
Hapag-Lloyd said discussions with UASC about combining their two container operations continue. If the two carriers reach an agreement, UASC would be included in the new alliance subject to regulatory approval.
In a related announcement, Hapag-Lloyd has reported revenue of €1.93 billion for Q1 2016 – down from €2.3 billion in the same period last year due to what it described as a "sharp decline in the freight rate" from US$1,331 per TEU in 2015 to US$1,067 for the first three months of this year.
Despite the combination of lower bunker prices and cost cutting that resulted in a Q1 EBITDA of €123.4 million compared to €283.6 million year-on-year, the net profit fell from €128.2 million in 2015 to minus €42.8 million for Q1 2016.
Hapag-Lloyd CEO Rolf Habben Jansen commented: "In the seasonally weak first quarter we recorded an acceptable result with a small operating profit and an EBITDA margin of 6.4 percent. This was due in no small part to the synergy effects which have been achieved so far as a result of the merger with CSAV and the improvements to our cost base under the OCTAVE [cost-reduction] program, which we implemented in 2015."
LONDON: May 23, 2016. The Maritime Safety Committee (MSC) of the International Maritime Organisation (IMO) has agreed a three-month hiatus to apply its verified gross mass (VGM) regulation for packed containers due to come into force on July 01, 2016.
The IMO has acknowledged concerns by shippers, terminal handlers and operators in respect to containers loaded on a vessel before July 01 and then transshipped after the VGM regulations have come into force.
The committee also noted that in the first few months after July “some leeway should be provided in order for any problems resulting from software updates, required for the electronic collection and transmittal of verified gross mass data, to be rectified without causing delays to containers being loaded”.
The MSC concluded it would be beneficial to shippers if government administrations and port authorities take a “practical and pragmatic approach” when enforcing the new VGM regulation in order to ensure containers loaded before July 01, 2016 and transshipped after that date reach their final port of discharge without a VGM.
Container transport insurer TT Club said it welcomed the new IMO guidance: “Like many others in the industry, we have been disturbed by the apparent confusion over how shippers will comply with the amendment to the SOLAS Convention,” said TT Club’s Risk Management director, Peregrine Storrs-Fox.
“Moreover we have been particularly concerned about the patchy guidance given by national authorities to assist shippers and operators in minimizing expense, delays and errors in complying with the regulation. This clarifying statement from the IMO is therefore welcome,” he added.
Storrs-Fox noted that because of a number of grey areas in the SOLAS regulation, the IMO is unlikely to penalize “any party who has done its level best to comply, even if it has not technically fulfilled the letter of the law."
THE HAGUE/DUBAI: May 11, 2016. Both APM Terminals (APMT) and DP World say they will have certified container weighing capabilities in place when the SOLAS Verified Gross Mass (VGM) comes into force on July 01.
Sultan Ahmed Bin Sulayem, DP World group chairman and CEO noted: “All our terminals will be ready to meet the obligations under the legislation by July 01 and each one will have certified weighing solutions in place to serve exporters in the IMO member states where we operate.”
Under international law shippers are required to provide a VGM for the 120 million ocean containers in the global supply chain before they can be loaded on to a ship.
This can be accomplished by either weighing the loaded container with calibrated and certified equipment, or weighing the cargo prior to loading and adding it to the tare weight of the empty container.
“Our first priority remains to ensure safe and efficient operations for the supply chain,” said Jack Craig, APMT head of Global Operations. “It is crucial that these regulations are met in a way which does not create congestion bottlenecks that ultimately impose additional risk and cost for all stakeholders.”
APMT will support EDI transmissions of VGM information from shipping lines into terminal operating systems prior to vessel load planning.
The company said export containers that arrive without a valid VGM will be “generally accepted, but as they are ineligible to load on a vessel, may be segregated and subject to additional re-handling and storage requirements”.
COUNTY DURHAM, UK: May 12, 2016. In anticipation of the new SOLAS regulations, Hy-Dynamix, part of the Dyer Engineering Group, has launched a mobile weighing solution for exporters to weigh containers up to 35 tonnes at point of packing.
Called ‘Hy-Weigh’, the unit is pallet-based and incorporates a control panel for individual corner raising and lowering. “We have designed a product which is simple, easy to use and reliable, with no complex software or electronics,” said Graeme Parkins, Hy-Dynamix managing director.
“Hy-Weigh removes the need for dedicated container craneage weighing systems or weighbridges, it is easily deployed and moved around a facility, and we are very proud to say it is manufactured in the UK,” he added.
MARSEILLE: May 25, 2016. The competition bureau of the Chinese Ministry of Commerce (MOFCOM) has cleared CMA CGM's proposed acquisition of Neptune Orient Lines following an earlier approval by the European Commission.
Last week the ocean carrier reported a net loss of US$100 million on revenue of US$3.4 billion for the first quarter of 2016 compared a net profit of US$406 million on revenue of US$4.0 billion in the same period last year.
TEU volume rose 2.9 percent year-on-year to reach 3.2 million as fleet capacity increased 6.7 percent to 1.8 billion, while average revenue per TEU fell 17.6 percent during the period.
The company said the increase in capacity was due to growth in Transatlantic and Transpacific trades to and from the U.S., while continued pressure on rates reflected “the ongoing imbalance between supply and demand” worldwide. The carrier has noted a “slight improvement” on the Asia-Europe and Asia-Mediterranean lines but added the environment remains fragile.
Rodolphe Saadé, CMA CGM vice chairman commented: “In a very difficult environment, we have in the first quarter recorded an increase in volumes above the market average, while maintaining a positive core EBIT margin.”
Saadé said the company plans to cut costs by US$1 billion in the next 18 months.
CMA CGM is continuing with its proposed acquisition of NOL following clearances from the European Commission and India, as well as developing its ‘Ocean’ operating alliance with Cosco, Evergreen and OOCL.
OSLO: April 26, 2016. Price comparison site Xeneta says the competition between ocean box carriers is so fierce they no longer charge according to commodity type as they focus on just filling their vessels.
Xeneta argues that oversupply, better supply chain management and falling fuel costs have made the market so competitive over the last 18 months that box content is no longer relevant in negotiations with shippers.
The firm says the average price for a 40-foot container on a short-term contract from Shanghai to Rotterdam has fallen 78 percent between July 2014 and April 2016 to reach US$595.00. As at April 19, the lowest price on offer has dropped 82 percent to US$321.00.
Xeneta CEO Patrik Berglund said: “In today’s market there’s too many boxes chasing too few cargoes. Traditionally, cargo was rated by weight or measure, with the ratings based on the cargo type.
“Calling a carrier or NVOCC’s rate desks for ocean freights was a painful experience, with negotiations based on cargo descriptions, packing, and cube - all designed to bring maximum revenue to the carrier.
“But now, as long as the box isn’t overweight - although even that isn’t always an issue these days - or filled with hazardous material, that’s all been pushed to the side. The carriers just want a full box, period.”
Berglund said the reason for the price slump is because slowdowns in the Chinese and EU economies have cut Chinese imports by 19 percent and exports by 13 percent over the past 18 months.
“When that’s married to the fact that 208 new ships were introduced to the market in 2015, boasting a capacity of 1.67 million TEUs, carriers have a major problem. Namely, a stunning 8.1 percent oversupply of TEU’s,” he declared.
Noting the possibility of a new alliance between COSCO, CSCL, Evergreen, OOCL and CMA CGM could challenge Maersk and MSC, he said the result could be a “perfect storm” to drive prices even lower.
“In this environment there’s rumors of rock bottom prices, with mentions of boxes booked for Qingdao – Rotterdam for as low as US$100, or even lower. So, at present, ‘what’s in the box’ isn’t the question, it’s ‘can we have your business please’?”
Xeneta’s shipping indexes comprise over 11 million contracted rates and covers 60,000 global trade routes.
OSLO: May 18, 2016. Xeneta, the Oslo-based benchmarking and market intelligence platform for containerized ocean freight, says the industry should adopt the idea of container transport as a commodity in order to benefit both shippers and carriers.
According to the company, which tracks data across 60,000 global trade routes, short-term market average rates for the Shanghai to Rotterdam trade are typical of the current industry situation: The market average price for transporting a 40-foot container has fallen 51 percent since July 01, 2014 and is currently US$1,294. Some Qingdao – Rotterdam boxes have been obtained for as little as US$100 during the last year, it adds.
Xeneta CEO Patrik Berglund commented: “These rates are obviously positive for hard-nosed negotiators wanting to ship freight, but not for the industry, and not for anyone in the long-term,” he said. “Only a handful of carriers managed to make a profit last year and some of the biggest players, like HMM and Hanjin, are close to bankruptcy, while UASC lost a reported US$500 million in 2015.
Noting rates would “skyrocket” if the industry “loses a few significant players,” he said subsequent market consolidation would be bad for both shippers and consumers. “So, regaining a sense of stability wouldn’t just be a good thing for the containership vessel operators, but for all stakeholders, right through the entire chain,” he declared.
“At the moment shippers and carriers are at loggerheads, fighting to get the best prices in an unstable market. However, by trading the transport as a commodity, at a transparent price, both parties achieve security and get the option of buying or selling forward when they feel the price is favourable to their interests.
Berglund says that big shippers, such as Walmart or Carrefour, could forward buy the appropriate number of TEUs for their needs and lock in product pricing and profit. Meanwhile, carriers, such as Maersk, could sell forward capacity on newbuilds at the point of ordering to ensure their future profitability, rather than risking making huge investments in uncertain markets.
The Xeneta CEO said he appreciated his suggestion might be radical but pointed out: “Carriers and airlines already hedge fuel; so what’s the difference?”
LONDON: April 23, 2016. A committee of the International Maritime Organization (IMO) has approved mandatory requirements for ships of over 5,000 gross tons to record and report their fuel consumption from 2018.
Under the proposed system, ships will be required to collect consumption data for each type of fuel they use and the aggregated data would be reported to the flag State in order to issue a subsequent Statement of Compliance.
The data collection is intended to provide what the IMO describes as “an objective, transparent and inclusive policy debate” in its Marine Environment Protection Committee (MEPC). However the data would be anonymous so individual ships would not be recognized.
MO secretary-general Kitack Lim said the proposal is a significant contribution to mitigate climate change: “It has been very encouraging to see States which had previously found it difficult to reach binding agreement on climate change measures bring the spirit of the Paris Agreement to [the] IMO this week.
"The unanimous agreement to take forward a mandatory data collection system for ships’ fuel consumption is a significant step. It will provide a solid basis on which to consider, armed with information, whether further measures may be required in future to mitigate GHG emissions from shipping,” Lim added.
As a result of adopting mandatory energy efficiency standards for newbuilds from 2013, the IMO says the global shipping industry will see a 30 percent overall energy improvement by 2025.
“The work in the MEPC this week shows IMO’s strong commitment, as the global regulator of the shipping industry, to continue its work to address GHG emissions from ships engaged in international trade. IMO has a major role to play in ensuring that the positive momentum towards climate change mitigation is translated into tangible and lasting improvements in people’s lives,” Lim said.
