By Paul Scott Abbott, AJOT
The ‘fierce monsters’ faced today by the ocean shipping industry are far from mythical, according to Nicola Arena, chairman and chief executive officer of Mediterranean Shipping Co. (USA).
In an April 30 keynote address to more than 800 global port leaders at the 25th biennial World Ports Conference of the International Association of Ports and Harbors, Arena warned of ‘formidable challenges’ posed by economic and political factors.
Arena, who is the top New York-based executive of the world’s second-largest container carrier, said that, as a boy growing up in Sicily, he was fascinated with myths of monsters Scylla and Charybdis stirring up ship-swallowing currents in the Straits of Messina.
‘Today, in the field of shipping,’ he said, ‘we also face numerous, fierce monsters. For those of us who earn our bread through this work, they are very scary indeed. Their names are probably familiar to you: Global recession, big jumps in oil prices, political or social unrest in a large country.
‘Indeed,’ Arena said, ‘all of us involved in international trade are facing formidable challenges arising from a strong global economic outlook and unpredictable circumstances.’
Arena noted that, while experts prognosticate world gross domestic product to grow an annual average of four percent over the next 15 years, US Department of Energy estimates indicate ocean borne container trade will grow about seven percent a year over the same period.
He said that this is in line with the 103% increase in world container trade compounded over the past seven years. This also validates an assumption that seaborne trade doubles every seven years, unless a major nation experiences recession.
‘We must recognize that some shipowners rightly predicted in the late ‘90s the positive effects of globalization on ocean trade and ordered larger and faster ships to meet the anticipated demand,’ Arena said. ‘We should reflect that, in 2001, there was a global recession and investing in new building was risky for shipowners.
‘But those who had the right vision reaped the appropriate reward, while timid operators paid a big price in terms of expensive charter rates and loss of market share,’ he continued. ‘Inevitably, the huge difference in financial results created favorable opportunities for mergers and acquisitions, and the process of consolidation will probably continue.’
As a result of this concentration process, Arena said, the three largest container carriers ’ Maersk, MSC and CMA-CGM ’ control 33% of world capacity as measured in 20-foot-equivalent units (teus), while the top 10 carriers combine for a 60% market share.
‘Obviously,’ he said, ‘the influx of many new ships creates more competition. Carriers with the right economy of scale, lower cost per slot-mile and better land organization have an advantage over smaller operators.’
Recognition by some shipowners that having lots of large containerships was not enough without sufficient competitively priced terminal facilities led to heavy investments by top carriers, and some financial institutions, in container terminals, thus triggering a dynamic increase in the value of port terminals, Arena said.
‘To understand the huge importance of ports, we must recognize that, while construction of a large containership takes seven months from keel-laying to delivery, building a new containerport takes several years in the United States or Europe,’ he said, citing as a rarity the three-year period is took to build the new Chinese port in Yangshan.
Quoting a US Chamber of Commerce report indicating most US public ports will face significant capacity problems by 2010, Arena said lack of sufficient terminals will be, ‘a major problem in the future’ The future looks even gloomier.’
‘All of us here know that ocean carriers and ports are indispensable tools of globalization,’ he continued. ‘Actually, without modern ships and efficient ports, there would not be globalization. In a certain sense, we have a symbiotic relatio