Maritime Market Updates

Quantitative Easing: Can it propel economic growth?

In a surprising move, Bank of Japan recently joined US Federal Reserve to buy mortgage bonds with a view to stimulate its economy. QE the creation of money to purchase assets has been the most popular weapon in the Central Bankers armoury so far. However, the trillion dollar question as posed by ‘The Economist’ is whether QE could boost the broad economy.

Research carried out by the Federal Bank of San Francisco indicates that US Feds asset purchases have probably taken 1.5% points of Americas’ unemployment rate. The real output by late 2012 is 3% higher than it would have been in the absence of QE and payroll employment could be as 3 million workers higher than it would otherwise have been. However, critics argue that gains do not justify the risks associated with large scale purchases.

A glaring risk from QE is of distortions in the market of government debt. Also whilst QE will reduce market pressure on sovereigns that would have otherwise have to face higher interest rates there was a need to deal responsibly with public finance. As stated in the ‘The Economist’ magazine, central banks lose control over inflation if the market has lost confidence in the sovereign and the bank is forced in to buying government debt. Whilst economists continue to argue on the relevance of various policy mechanisms used to stimulate economic growth, it is however evident that conventional arms used by various central banks have run out obviously causing concern for the shipping industry.

While the voyage of discovery on the best monetary policy mechanism continues, shipping lines are faced with further erosion of freight rates. On the Europe to Far East sector, many shipping lines plan to suspend services by temporary vessel sharing and increase additional slow steaming. During the first half of 2012 combined 23 top 50 carriers posted an aggregated loss of US$ 3.1 billion.

Meanwhile the World Trade Organisation has revised the worldwide trade growth forecast from 3.7% to 2.5% for 2012 and from 5.6% to 4.5% for 2013. It has warned that the global economy will continue to face strong head winds. The data shows that China’s economy continues to lose momentum combined with US manufacturing recording its weakest quarter in three years. There is renewed call on Beijing to provide a fresh stimulus with manufacturing activity shrinking for 11 straight months up to September in China.

Maersk challenge: Are we ready?

At the TOC Europe Conference, Maersk CEO said Maersk 18,000 Teu triple E Class vessel would need to handle 6,000 containers per port call and the ports must turn the vessel within 24 hours in order to justify a port call. To achieve 6,000 moves in a day requires a berth productivity of 250+ moves per hour, which can be met with eight cranes operating at 31 moves an hour.

With Maersk Lines’ ‘Daily Maersk’ service not covering a single port in South Asia, it will be interesting to see a terminal in this part of the world taking on a 6,000 moves per 24 hours challenge. With a view to further enhance productivity, CTA Hamburg has introduced double cycling which doubles the productivity of quay cranes. CTA is considered to be the only automated Container terminal to introduce double cycling.

Shipping lines – urged to avoid vicious competition

As reported in DynaLiners weekly with the slide of all inclusive Far East to Europe rates to minus 37% since 1 July according to Shanghai Container Freight Index spot rates and minus 18% per World Container index all kinds of rates shipping lines have been urged to take action to avoid vicious competition.

The tenor of a paper presented by the President of APL recently was “there is no new China and we must brace for a much more moderate growth back to the old fashioned GDP ratio”. The centre of growth is bound to shift from East/West to smaller North South and regional routes with consolidation amongst shipping lines becoming unavoidable.

India’s exports fall and port capacity under threat

Despite India’s exports increasing 21% year over year to US$ 303.7 billion in fiscal 2011/12 its exports shrank for the fourth consecutive month in August on a year over year basis by 9.7% to US$. 22.3 billion. Imports for August declined 5% to US$ 38 billion year on year leaving a trade deficit of US$ 15.7 billion.

Hot on the heels of PSA and local AGB withdrawing from the fourth terminal project in Nhava Sheva a consortium including London listed Eredene Capital and Grup Maritim TCB of Spain has decided not to pursue the intended US$ 335 million terminal Ennore on the Indian east coast north of Chennai.

Reasons given for this withdrawal is bleak economic outlook in India, increasing project cost and difficulty in securing finance from the State Bank of India, depreciation of the Indian rupee and reduced container traffic growth projections.

Vizhinjam in Kerala has not been able to attract a serious investor for years. Adverse economic conditions combined with the decision making process of TAMP India’s traffic authority for major ports and continuous bureaucratic issues, seems are taking their toll. In the light of these developments neighbouring ports relying on Indian transhipment traffic is bound to revisit their business modules.

With slow steaming ships, shippers move to air cargo

In a bid to cut bunker costs and absorb excess capacity with shipping lines embarking on super slow steaming – some shippers have been compelled to send their goods by air. As it was reported at the TOC Container Supply chain event this year “lots of business can’t live with a 40 day transit time”.

For the struggling air cargo industry slow steaming must be creating a window of opportunity. For Shippers who do not want inventory and working capital tied up for a long period, super slow steaming isn’t always a first choice. Equally shippers do not want to pay extra for their goods to arrive in just two to three days. Can the industry provide the shippers with a solution in between?

TSA carriers face steep uphill climb to restore freight rates.

Though Transpacific Stabilisation Agreement (TSA) members has recommended a rate increase of US$ 800 per Feu to the US West coast and US$ 1,000 per Feu to the US East and Gulf coast the application of which is bound to face a “perfect storm”. The proposed rate increase was badly needed in the light of weak balance sheets and tight credit.

According to TSA members, TSA Revenue index has remained at levels seen in 2011 despite subsequent increases. The average carrier operating margins as reported has been negative since the beginning of 2011 bottoming at minus 12% in Q1 2012. As stated by TSA Executive Administrator “carriers are potentially facing a kind of perfect storm next year and heading into 2014”.

7226 Teu ‘Svendhorg Maersk’ is out of work

The survey indicates that the biggest vessel idling without employment is 1998 built 7,226 Teus Svendhorg Maersk which is outside Qiawan since 12 August. Approximately 41% of the world’s idle container fleet is laid up in China, South Korea and Russia, with 27% in Vietnam, Malaysia and Indonesia.

The idle container capacity a week ago stood at 290 ships, aggregating to 420,000 Teus equivalent to 2.6% of the container fleet, is a cause for concern. Of the idle fleet, non operating owners account for 80% against ocean carriers with 20%.

The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK) and a University of Oxford Business Alumni. He could be reached via [email protected].