High-tech Panama Canal, a threat to Asia-Europe trade

High-tech Panama Canal, a threat to Asia-Europe trade

The Panama Canal Authority is developing a computerised scheduling and resource management system that it said will help double the number of big ships that can travel through the canal each day, giving it a competitive edge against the Suez Canal. The first phase of the system, which was commissioned late last year, will be up and running by September, with two more phases that will be completed by the end of 2018. 

The “state-of-the-art” system will be located in the canal’s Marine Traffic Control Centre and is designed to automate, schedule and plan all of the moving parts that help a ship move through the canal, including tugs, pilots, deck crew and locks, said Arnoldo Cano, Program Manager for Renewal Processes and Core Systems at the authority. 

The system also will help to “significantly lower” the time of ships arriving at the entrance to the canal without an advance reservation have to wait to get through, said Cano, adding that the authority does not yet know exactly how much the waiting time will be reduced. In February, the average waiting time for such a ship was about 40 hours. 

On average, between 28 and 41 ships of all sized have passed through the canal since it opened in June and passage from one end to the other has taken about 11 to 13 hours, excluding waiting time at the start. Any reduction in time, or increase in passage availability, could help the canal compete for business from Asia with the Suez Cana. For example, a Maersk Line service from Chiwan, China to the Port of New York and New Jersey through the Panama Canal takes 32 days compared with 30 days by the same carrier through the Suez Canal. (JOC)

A vessel worth $ 60 million sold as scrap

In January 2010, the container ship Hammonia Grenada was delivered from a Chinese yard to its new owners, reportedly priced at about $ 60 million. Just seven years later, at the start of this year it was sold for scrap. The price an estimated $ 5.5 million. 

It’s not the only vessel to suffer this fate. Last year container ships were sold at rock bottom prices for scrap in record numbers. The simple reason is that there are too many ships for too little cargo. There was not one but two waves of container ship ordering in 2010 and then again in 2013-14. Interest rates were low and money was cheap. The result, a massive oversupply of vessels. 

The attitude in the industry was when you are not making profits the best thing to do is to cut costs and the best way to costs is to increase scale, buying bigger and more fuel efficient ships, explains Rahul Kapoor, Director at Shipping Consultancy Drewry Financial Research Services. (BBC)

New alliances and rate turmoil

Rate turmoil may be on the cards for Asia-Europe, at least as carriers’ transition from the old alliances to the new vessel sharing agreements. Under the new alliance structure, total weekly capacity from Asia to North Europe will increase by almost 10% compared with the services currently offered on the trade, which Alphaliner warns could lead to further rate turmoil this year. 

That is something container lines don’t need, with the financial results reported so far revealing how badly they were hurt after a brutal rate war in the first half last year dragged the spot rate down to just $ 205 per 20 foot equivalent unit (TEU). This contributed to Maersk Line’s $ 376 million loss in 2016 and Orient Overseas Container Line’s annual loss of $ 273 million. 

Although last year may have been bad financially, demand actually rose above the growth of capacity for the first time in a long time, 2% demand compared with 1.2% fleet growth. However, the significant increases weekly capacity that will be injected after April suggest that any supply-demand balance this year will be temporary. 

Container lines are just a few days away from launching three giant new global shipping alliances on 1 April and are preparing for the phase in of additional vessel capacity. Alphaliner said the Ocean Alliance, The Alliance and the 2M Alliance plus Hyundai Merchant Marine (HMM) will provide 17 weekly strings between Asia and North Europe, one more than offered by the four existing alliances (2M, G6, CKYE and O3). Carriers’ reluctance to give up any market share was apparent from the planned transition to the new alliance networks. (JOC)

Shippers question Europe-Asia surcharge

Europe-Asia shippers believe that capacity tightness is not due to higher demand alone. The world’s forwarding industry has weighed into the Europe-Asia capacity issue, questioning the justification of a peak season recovery surcharge being levied by some carriers on the backhaul trade and expressing doubt that the lack of space was a result of higher demand alone. 

FIATA, the International Federation of Freight Forwarders Association, and European Association CLECAT, said several carriers have announced a peak season recovery surcharge on cargo moving from Europe to Asia, something the associations were taking a dim view of. FIATA and CLECAT cannot silently absorb the new peak season recovery surcharge for shipments booked subject to tariffs and agreements valid at the time of booking, the forwarder associations said in a joint statement. Ongoing contracts and fixed agreements should be respected in order to keep sustainable relationships in the supply chain. 

The forwarders also expressed doubt whether the peak season recovery surcharge could justifiably be classified as a surcharge at all, saying surcharges by definition related to sudden changes in variable costs incurred by carriers, such as bunker prices, port congestion and currency fluctuations. 

FIATA and CLECAT question whether such changes in the variable external costs have actually occurred in this situation, the association said. Capacity for maritime shipments to Asia has decreased dramatically in the post-Lunar New Year period and while this has occurred with a concurrent increase in demand for shipments to Asia, the forwarders said insufficient capacity could not be explained merely by greater demand. (JOC)

Hapag-Lloyd/UASC merger not at risk

Hapag-Lloyd has been in the process of merging with United Arab Shipping Company since the summer of 2016. Hapag-Lloyd said its merger with the United Arab Shipping Company (UASC) has been pushed back by two months to 31 May, but stressed the deal is not at risk and the launch of The Alliance of which it is a member will proceed as scheduled on 1 April. The two carriers had planned to close on the transaction by 31 March, but the final preparations have taken longer than expected, Hapag-Lloyd said in a statement. 

The transaction itself is not at risk. All merger clearances and authority approvals as well as all banking approvals for Hapag-Lloyd and substantially all banking approvals for the UASC have been obtained and the companies are arranging the final documentation for a closing of the business combination. 

Irrespective of the actual closing date, the Alliance will start its operation as of 1 April, including all vessels as planned. Industry experts and shippers have expressed concerns that the launching of new alliances with a shotgun start on 1 April will negatively impact port operations and ocean carrier service levels. 

The Ocean Alliance of China Cosco Shipping, Evergreen Line, CMA CGM and Orient Overseas Container Line also starts on 1 April, as does the 2M Alliance’s strategic cooperation agreement with Hyundai Merchant Marine. Hapag-Lloyd’s partner in The Alliance are Taiwan’s Yang Ming Line and the Japanese carriers MOL, “K” Line and NYK Line, which are merging. The Alliance is on the only one of the vessel sharing agreements taking effect 1 April to have instituted a mechanism to ensure the delivery of cargo should a member fail like Hanjin Shipping did in 2016. 

The Hapag-Lloyd-UASC merger will create the world’s fifth largest carrier with a fleet of 237 ships for a total capacity of around 1.6 million 20 foot equivalent units (TEUs), equivalent to a 7.4% market share, annual traffic of 10 million TEUs and revenue of approximately $ 12 billion. (JOC) 

[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).]