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Nearly half the companies said they planned to reshore activities in the next 12 months. Italian companies were the most likely to have reshored activities, with 44, having brought some operations back to their home country during the past year. Irish businesses were the second most likely to have brought activities home, at 42, with Spanish companies at 32 and German at 30. Hawksworth said several factors explained the trend, including a reduction in the wage gap between the eurozone and emerging markets, particularly China.
Although the majority of the executives surveyed said they expected the euro to weaken during the next 18 months, Hawksworth said short-term moves in exchange rates played a less important role in companies’ decisions to reshore than factors such as labour and transport costs. Reshoring is not because of the weaker euro or lower unit labour costs in the eurozone (after the financial crisis), he said. European economies have seen some improvements in competitiveness but bigger changes are in the costs of potential suppliers in Asia.
The trend is not limited to the euro zone. In a speech at the World Economic Forum in Davos this year, David Cameron, UK Prime Minister, highlighted business such as Symingtons, a food producer, and EE, the mobile phone operator, as having reshored some operations to the UK.
Shipping lines still in choppy waters
Strong demand over the summer had enabled lines to reactivate almost all idled capacity but declining rates since September on most trades illustrated that the ‘fairytale’ recovery had at the least now paused. Now that we have got idling ships down to almost nothing, the big question on the supply side of container shipping is ‘what next?’ was a question raised by BIMCO Shipping Analyst. Will some liner companies begin to speed up their ships? Fuel costs have come down but remain at a high level. The charter market is horrific. Idling was a sign of a deeply troubled industry and the disappearance of it now is not a sign of an industry with disappeared troubles.
The analyst predicted that if higher speeds were reintroduced, less tonnage would be needed in current trades. From this, cascading would intensify, fuel consumption and costs would go up and we have just seen how tight the market balance is, he said. The demand side is not all conquering and why reverse all the cost cutting initiatives that have brought a certain level of profitability back to the industry?
Ship order book ratio lowest since 2000
The global order book to fleet ratio is the lowest it’s been in 15 years, Alphaliner said today, though it could soon rise as carriers are expected to place orders for larger ships later this year. Carriers have ordered 145 container ships with a capacity of over 1 million TEUs through October. The current order book is for 3.5 million TEUs, about 19.3% of the existing fleet of 18.2 million TEUs. The order book to fleet ratio currently sits below 20%, as opposed to major peaks of 60% in 2005 and 2008. Standard ratios sit between 30% and 40%.
The report noted that container ship demand spans the spectrum, from ultra large mega ships to ships under 2,000 TEUs. The majority of the ships under order, Alphaliner says about 100 of the 145 total orders are for ships between 8,500 and 10,000 TEUs. Ships of that size, with a 19 row beam and an overall length of up to 335 metres (1,005 feet), accounted for 23% of all container ship orders since 2000. Alphaliner said mid-sized vessel orders, for ships between 3,000 and 7,500 TEUs, have been scarce in the past two years.
The mid size segment also faced significant pressure from above, as these (8,500 TEU ships) will replace the 4,000 to 7,000 TEU vessels, leaving them with limited prospects for re-employment, Alphaliner wrote. But those orders have been dormant since March, Alphaliner said in part to declining demand on the Latin America and Black Sea trade lanes, where the ships are used the most.
Shippers unconvinced on container alliances
Carriers claim alliances are not just about reducing costs but will improve service levels for shippers by offering more port pairs on the east-west networks, but shippers remain sceptical. The annual Shipper Sentiment Survey, which includes views from freight forwarders, found that more than 50% of respondents feel alliances have not improved service quality. Most also remained unsure that the emergence of the 2M alliance was a good alternative to the previously proposed P3 network.
The 2013 survey found shippers and freight forwarders largely supportive of the P3 alliance, 46% of respondents viewed it as a positive development. This year, having had time to reflect on the now defunct P3 plans, shippers and forwarders appear to have changed their minds. Just 23% feel that the failure of the P3 was a negative development, but only 35% agree that the 2M alliance represents a good alternative to P3. General comments from shippers and forwarders highlighted a concern that it would have given the carriers too much control of overall supply and demand.
I can see the benefits from the carriers’ standpoint with lower operating costs but from the shipper’s perspective it would probably have led to reduced competition and higher freight costs, said one respondent. P3 looked more of a monopoly attempt than anything else, said another. Others had concerns that it would result in reduced services. Those that were positive about the alliance hoped it would bring more stability to the industry.
Forwarders appeal against price fixing
The European Commission imposed fines of ¤ 169 million on a total 14 agents in March 2012, with those imposed on the five forwarders to have appealed totalling ¤141.3 million. The forwarders that appealed are, Kuenhe plus Nagel, which was fined ¤ 53.7 million, Panalpina ¤ 46.5 million, DB Schenker ¤ 35 million, UTi ¤ 3.1 million and CEVA-EGL ¤ 3 million. The other forwarders fined were units of Agility, DSV, Expeditors, Hellmann, Kintetsu, Nippon Express, Toll, UPS and Yusen.
A European Court of Justice Spokesman told Lloyd’s Loading List.com that oral hearings for the appeals from each of the forwarders had taken place at the General Court of the European Union this autumn. German logistics group Deutsche Posts’s DHL, Global Forwarding and Exel Business Units received immunity as they were the first to reveal the existence of the cartel to the Brussels based antitrust authority, in 2007.
We are now at the stage where the judges have begun their deliberations on the appeals and we can probably expect verdicts to be issued sometime next year, the European Court of Justice Spokesman said.
One observer familiar with the EU appeal process said a likely outcome was that the forwarders’ fines would be reduced. DB Schenker, CEVA, Agility and Yusen have already received reductions in the fines ranging from 5 to 50%, reflecting the timing of their cooperation and the extent to which the evidence they provided helped the Commission to prove the respective cartels.
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).
