Monday, 1 July 2013 00:00
-
- {{hitsCtrl.values.hits}}
Reduction of poverty a boon to shipping
Demand for the carriage of goods by sea is a derived demand. It is derived out of demand for trade. Over the years the world has made tremendous progress in the alleviation of poverty. Between 1990 and 2010 as a share of the total population in developing countries, poverty fell by half from 43% to 21%, which is a reduction of almost one billion people. However, of the seven billion people living on the planet, 1.1 billion still live below the internationally-accepted extreme poverty line of US$ 1.25 a day. America’s poverty line is US$ 63 for a family of four. In the richer segment of the emerging world US$ 4 a day is the poverty barrier.
By adopting market-driven policies China managed to push 680 million people out of the poverty misery line from 1981 to 2010 and reduce its extreme poverty rate from 84% in 1980 to 10% now. As referred in the Economist, if the poorest countries are not left behind by faster growing middle income countries and if inequality does not widen, then developing countries could reduce extreme poverty from 16% of their population now to 3% by 2030, which will propel increased consumption and in turn more trade.
Container ships order book erodes
According to Breamer Seascope, the ratio of container capacity on order compared with trading fleet has dropped below 20% last month. With more than 1.7 million teu expected to be delivered in 2013, the ratio is expected to decline to 16% by the end of the year. Between 2003 and 2008 there was a ship ordering boom with 10 million teu of container ships capacity being ordered and the order book ratio increased up to 60% in 2007 when a capacity in excess of three million teu was ordered.
Though due to the global economic and financing crisis ship financing has become difficult, new orders have increased in 2013 on selective niche container ships. As confirmed by brokers, this year 80 container ships with a capacity of 580,000 teu have been ordered so far. This is as against a combined capacity of 230,000 teu ordered during the corresponding period in 2013. Shipyards attract shipping lines with reduced new building prices in a strategy to increase and maintain their forward cover.
G6 Alliance cancels voyages on Asia-Europe Trade
During the traditional peak season in July, August and September, members of the G6 Alliance serving Asia/Europe have cancelled several voyages on the basis of vessel maintenance. To cite a few examples: on North Europe, OOCL announced that Loop 06 vessel which was scheduled at South Hampton on 24 July, its first port of call, has been cancelled. Other members have confirmed that Loop 07 ship APL Paris due to sail from Qingdao, China, on 3 July will also be cancelled. Some shippers argue that it is normal practice to spread vessel maintenance on a liner service and during a particular ship’s absence short term replacements have to be phased in. Hence cancellation of voyages shippers allege is intentional to reduce capacity.
P3 Alliance: Will European Union/US FMC block?
Subject to regulatory approval, the P3 Alliance between Maersk Line, MSC and CMA-CGM, the world’s largest three carriers by teu capacity liftings, will kick off by the second quarter of 2014. As reflected by Dynaliners, the few quick and broad share data includes: 35% of combined capacity three East-West routes; 29% of 2012 global full TEU trade liftings; 38% of existing containership fleet capacity; 22% of current order book; 24% of current ULCS fleet (operating and on order).
According to the EU’s five-year Consortia Block Exemption Regulation (823/2000, effective 25 April 2010) the market share threshold has been fixed at 30%. The US Federal Maritime Commission (FMC) is the regulatory body for the Transatlantic and Transpacific trades. The current capacity shares of the combined P3 Alliance partners can be estimated at around 45% for the Europe-Far East trade, 24% for the Transatlantic and 44% for the Transpacific. It is obvious that the formation of P3 Alliance will have a significant impact on shippers, ports, terminals, competition, freight rates and ships, which will be analysed in an article later.
Container freight rate push: Can it hold?
Over the last few weeks container freight rates on many routes have declined heavily. On Asia to Europe, prices have contracted by 59% since the beginning of this year and the transpacific trade has declined by 17% to the West coast and 11% to the East coast. The World Container Index has reported that prices on Asia to Europe trade lane dipped 6% week on week during June to US$ 998 per feu. It is the first time since 2011 where freight rates per feu has declined below US$ 1000 per feu mark. However, carriers have taken a bold step by increasing prices between US$ 775 to US$ 1000 per teu on the Asia to Europe sector, the largest rate ever proposed so far. Hapag Lloyd, MOL and MSC are aiming for an increase of US$ 1,000 per teu whilst Maersk Line and COSCO are targeting US$ 950. OOCL is pitching at US$ 975 and CMA-CGM is the lowest with an increase of US$ 775 per teu.
Alphaliner said it was sceptical about the success of the rate increases as the present move follows five failed attempts since January. However, the prospect looks slightly better as the timing coincides with the commencement of the summer peak season in July. With carriers adjusting vessel capacity by cancelling services and announcing plans to lay up vessels with a view to manage supply/demand imbalance, there is a possibility of shipping lines being able to obtain at least a fair share of their announced rate increases.
Hong Kong port volumes decline by 10.5%
As reported by the Hong Kong Marine Department the container throughput handled in the Port of Hong Kong in May was 1.8 million which is a decline of 10.5% handled in May last year. Meanwhile, Port of Singapore marginally increased its container throughput in May by 1.4% having handled 2.8 million teu compared to 2.7 million teu in May last year.
Bargain deals for ships
Shipping lines are continuing to receive bargain deals from shipyards. United Arab Shipping Co. (UASC) is expected to pay around US$ 149 million for a vessel with a capacity of 18,000 teu to Hyundai Heavy Industries. Meanwhile, CMA-CGM as reported have negotiated a price of around US$ 145 million for three ships of 16,000 teu to be built by Samsung Industries that would have cost more than US$ 180 million a vessel a few months ago.
With freight rates increasingly coming under pressure, shipping lines have to focus on reducing slot costs through economies of scale by operating larger vessels. In the current ordering trend what is significant is the return of the speculative buyer which includes John Fredriksens Shipping Finance International which has ordered four 8,700 teu units and Emiricos Linked International Maritime Enterprises which has ordered a pair of 9,000 teu ships.
[The writer is 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 NORAD /JICA Fellow.]
