Containership operators eye new ways to cope with slumping box business
Containership carriers have struggled to match capacity to demand. Will new services take enough capacity out to match the slumping box traffic? Perhaps services to the US East Coast will switch from the Panama Canal to the Suez? And will a box carrier merger in Asia be a market setter? UK based-Paul Richardson’s analysis of the box business holds some surprises for the New Year.
By Paul Richardson, AJOT
It has been no secret for several years that the Asia/North Europe and Asia/Mediterranean container trades are taking the full toll of Europe’s economic recession.
Container lines have struggled with adjusting the capacity/demand ratio to accommodate the downturn, and the inevitable has happened. Alliances and individual carriers have been forced into a situation of a closer working relationship, either through merging of groups, or by a series of vessel and slot swop agreements that would have been unheard of some years ago.
However, one of the biggest surprises was the formation of the so-called G6 Alliance, comprising Hapag-Lloyd, NYK, OOCL, APL, Hyundai Merchant Marine and MOL (Mitsui-OSK Lines). The six were member lines from the Grand Alliance and New World Alliance on the Asia/Europe trades, and the move not only reduced capacity, but combined lines, all with their own specific market clout.
More importantly, the resulting six G6 services covering the Asia/North Europe trade, and a further two concentrating on the Asia/Mediterranean sector, effectively reduced capacity compared with the original Grand and New World setups, and allowed for a more combined and positive approach to the market downturn.
As these changes occurred, Mediterranean Shipping Co (MSC) and CMA-CGM set up a series of vessel and slot sharing agreements covering the Asia/North Europe trade, and Maersk together with CMA-CGM strengthened their existing service agreements on the Asia/Mediterranean trades.
Although the Asia/US trades are nowhere near as severely impacted as a result of the economic downturn as those covering Asia/Europe, the success in merging two individual alliances, and the closer working relationship through slot and vessel sharing agreements, has worked.
The resultant adjusting of capacity to meet market demand has obviously proved successful. And the next question is when does the initiative move further ahead?
On the Asia/US trade, the six lines of the G6 continue to work under their separate Grand and New World Alliance banners, but it would seemingly be inevitable that at some stage, either the US West or East Coasts, or even both will welcome a new group name to their terminal shores.
At the end of October, the New World lines filed with the Federal Maritime Commission (FMC), an application to have their existing Asia/US agreement extended to March 1st 2016, a move that could lay the foundations for the Grand Alliance lines to follow.
Although any formation of a G6 Alliance in its totality on the Asia/US trades could be seen as a long way off at the moment, it is not beyond the realms of possibility.
Some of the six lines, as well as others including Zim, and separately, Maersk, CMA-CGM and MSC, already work together through a mismatch of vessel and slot sharing agreements to cover the Asia/US trades, and thus the foundations are there – it just needs that all important FMC filing application to take the initiative that step further.
Still on the same trade lane subject, there is increasing belief that some of the big lines will launch new Asia/USEC services through the Suez Canal, and in some cases, at the expense of existing services presently transiting the Panama Canal.
Most shipping lines acknowledge that the Asia/US East Coast trade faces an industry-wide concern over operating costs, and the dilemma of whether a service via the Suez Canal or whether one via the Panama Canal offers the best perspectives.
There is mounting speculation that several of the big names in shipping will withdraw services that presently serve the Asia/USEC trade via the Panama route and switch to the Suez Canal transit option.
A service network evaluation is underway, and there is mounting belief the Panama route will lose out to the Suez on several existing service networks.
The main and obvious problem that exists with the Panama Canal route is that vessel capacity is restricted to the so-called panamax parameter of around 5,000 teu, while the Suez has no restrictions on existing vessel capacity.
Beyond that concern, the only problem facing the Suez is its location close to the politically sensitive areas of the eastern Mediterranean and the western regions of the Middle East.
It will take until, at least, the latter part of 2014, for the Panama Canal lock widening systems to be completed, and thus almost three years before a 10,000-teu vessel can transit this conduit to serve the US East Coast trade.
Most notably over the course of the last five to seven years, there have been three factors affecting the Panama Canal route:
• On the Asia/US West Coast trade, vessel capacity has been steadily upgraded, and today, it is quite a common occurrence for a 10,000+ teu vessel to be deployed on that trade. While on the Asia/USEC trade, the largest vessels using the Panama Canal transit are only half that size
• Fuel prices have increased dramatically, and costs have obviously risen for lines serving the USEC compared with the USWC link across the Pacific.
• Canal tolls have also risen, and all three factors have resulted in higher costs for lines to serve the USEC via Panama route.
So the lines are coming back to reality and common sense – is it worth the extra cost to ship via the Panama Canal compared with switching to the Suez alternative?
As one senior shipping line executive commented recently, “From the lines’ perspective, is it worth waiting another three years before deploying a 10,000 teu vessel via Panama, when you can use the Suez route immediately to cover the Asia/USEC trade?”
There can be no doubt, the USEC via Panama Canal route is in a dire situation, as shipping lines are left with few alternatives – pursue significant revenue increases, and/or alternative routings via the Suez Canal.
Revenue increases depend on the market situation and can regularly fluctuate on any trade, but the Suez capacity parameters are twice the size of the Panama Canal, and the cost of operating a 10,000 teu vessel is far lower than one of 5,000 teu.
Separately, earlier this year, the giants of China’s container shipping industry, COSCO and China Shipping, agreed to co-operate on a new intra-Asia service, heightening belief that the long-awaited merger of the big names on the main deepwater trades was not far off.
In reality, the much expected has yet to happen, even though the two lines work closely through various slot swop agreements between the CKYH Alliance and China Shipping on several big trades.
Despite intra-management changes between the two lines, and the increasing belief that a merger was in the cards, there have been few movements in this sector, and the lines continue to keep themselves as “independent” operators on the major trade lanes.