Shipping alliances in a fix

Shipping alliances in a fix

With the merger between China Shipping and Coscon getting closer, the burning alliance question may now soon become imminent – namely which one will the merged entity become a member of: China Shipping’s Ocean Three (with CMA CGM and UASC) or Coscon’s CKHYE Alliance (with “K” Line, Hanjin, Yang Ming and Evergreen)? Should the all Asian CKYHE become the grouping of choice, and then UASC may feel induced to purchase APL, silently put up for sale by parent NOL, to preserve the Ocean Three. 

Additionally, this group may encourage Hamburg Sud to become a vessel operator instead of the current slot arrangements. The G6 Alliance, losing APL, would then become G5, still large enough, provided that its two South Korean members (Hanjin and Hyundai) survive their serious financial troubles. Hyundai was quick to deny suggestions that, alike China Shipping and Coscon, the Korean government has asked it and its compatriot Hanjin to consider a merger. Both carriers have been in rough waters for quite some time now and only managed to stay afloat by selling off properties, as reported by DynaLiners.

 

Maersk line to cut 4,000 jobs

Over the next two years, Maersk Line expects to lower its annual Sales, General & Administration (SG&A) cost run-rate by $ 250 million with an impact of $ 150 million in 2016. SG&A savings will be derived from already initiated transformation projects and the standardisation, automation and digitalisation of processes, the line said. CEO Soren Skou said, “We are on a journey to transform Maersk Line. We will make the organisation leaner and simpler. We want to improve our customer experience digitally and at the same time work as efficiently as possible.” 

He said the organisational transformation and on-going automation and digitalisation will enable Maersk Line to reduce the global organisation by at least 4,000 positions by the end of 2017 from its current level of 23,000 land-based staff globally, with the aim of minimising redundancies through managing natural attrition. “We are fewer people today than a year ago. We will be fewer next year and the following year. These decisions are not taken lightly, but they are necessary steps to transform our industry,” concluded Skou.

As a response to the current market outlook, network capacity will be reduced in Q4 2015 and throughout 2016. As already announced, the closure of four services (ME5, AE9, AE3 and TA4) has already been initiated over the last two months and plans are in place to further cancel a total of 35 sailings in Q4. On the postponement of new vessel orders, it said “Maersk Line will continue to manage capacity and does not plan to exercise and previously announced options for six 19,630 TEU vessels and two 3,600 TEU feeders and will postpone decision on the optional eight 14,000 TEU vessels.”

 

Rampant cargo crimes

Cargo crime is ‘alive and well’ and remains firmly among the top five causes of freight claims, despite the increasing focus on the emerging risk of cybercrime, reports freight insurance specialist TT Club. TT Club’s experience is that theft accounted for about 13% of cargo claims, by number and value, over the last five years. It said much recent attention has been focused on the emerging risk of cybercrime, as internet capabilities are increasingly used to identify, track and intercept cargo. 

However, case studies abound for the more traditional vulnerabilities, even if potentially aided by electronic means. Peregrine Storrs-Fox, Risk Management Director at TT Club, said these days it may not be entirely accurate to focus on a ‘peak’ season in cargo movements, but it is certainly timely to reflect on the state of freight crime, whether or not ‘Black Friday’ (the day after US Thanksgiving) presents a particular exposure globally, not least as the risks around this retail event certainly extend to other geographies. 

He said that, unsurprisingly, information published by others concerned with freight security, such as Freight Watch International (FWI), ‘corroborate in large measure the Club’s findings concerning the continuing exposure to ‘traditional’ thefts, while adding some interesting colour to the trends. For example, FWI identify that food and drink cargoes are becoming more exposed to theft and particularly, it would seem in winter months when perishable cargo is not quite so vulnerable’. 

He noted that FWI describes the attractiveness of thieves of such lower specified cargo types because they have no unique serialisation to hinder the reselling of these products, with criminals weighing the pros and easy obtainability and liquidation against the cons of perishability and medium value density as they determine where to focus their efforts. However, as expected the usual electronics, clothing and pharmaceuticals also remain attractive to criminals, said Mr. Storrs-Fox. Essentially, any goods that can with relative ease be resold are seen as a fair game.

 

Shipping lines to trim service fees

The two world-leading liner operators, Maersk Line and CMA CGM will reduce charges for documentation and telex services and scrap a customs clearance fee at Chinese loading ports altogether, according to a statement from China’s National Development and Reform Commission. Maersk Line introduced the reductions effective 1 November. The French carrier is expected to follow in two weeks. The NDRC, the country’s top economic planning agency, said the two companies’ action will help Chinese exporters save costs up to Yuan 92 million ($ 14.5 million) in shipping their cargoes abroad. 

To date, 11 liner companies have complied with Beijing’s wish to conduct self-inspection and restore the additional service charges to reasonable level. The agency pointed to the reduction in telex service charges by different carriers to demonstrate the effectiveness of the initiative. Leading the efforts are Japan’s K Line and Maersk Line, which have reduced telex service charges by 62.5% and 57.8%, respectively. 

Others – NYK, Hyundai Merchant Marine, Evergreen, Wan Hai Lines, China Shipping Container Lines, Hanjin Shipping and Mighty Ocean Shipping, have all achieved reductions of 50% to 10%. The NDRC will continue to urge the shipping companies to develop lawful operations and further lighten the burden of the exporters, the statement said. 

 

22% decline in turnover

The nine month 2015 turnover of Neptune Orient Line’s (NOL) container shipping division, i.e. APL, dropped by a severe 22% year-on-year to $ 4.13 billion as APL’s average freight rates fell by 21% amidst pressure from overcapacity and volume contracted 11%. This latter was attributed, in part, to a significant drop in US exports. APL’s nine month operating result (core EBIT) improved strongly by 68%, but was still negative at $ 33 million.

NOL’s net profit at the end of the period was still strong at approaching $ 780 million, but this was on the back of a more than $ 90 million loss for the quarter. It’s year-to-date figures have been buoyed, considerably, by the earlier sale of APL’s logistics division. APL’s nine month 2015 carryings went down (again), this time by a depressing 12.8% year-on-year, to 3.7 million TEU. Business in all trade lanes declined strongly and quite dramatically by 65% in the Trans-Atlantic trade, although this trade is the smallest for APL. Revenues per TEU do not make for better reading, decreasing by nearly 15% overall.

 

Shipping cost to increase

Shipping accountants Moore Stephens forecast that shipping costs will increase by 3.3% for the container sector in 2015. Major drivers of this and valid for other shipping sectors too include, crew wages, repair, maintenance, dry-docking and spare parts. Future pressure on vessel operating costs will come from new regulations and stricter rules surrounding repairs and maintenance, amongst others.

(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).)