Despite signs of growth in worldwide perishable trade, shipping operators have endured lacklustre business and negative growth in other sectors. According to insiders, there was already a gap between container capacity and demand even before the recession took hold. Analysts blame ongoing orders for bigger and better vessels from shipyards as a contributing factor to overcapacity.
Reducing the cost out of the supply chain remains the most significant factor in supplying the fresh produce industry, according to Maersk Line. However, the quality of service delivered to customers must not be compromised.
Dirk Hoffman, Maersk Line’s reefer sales manager, explains: “The cost of bunkers (vessel fuel) has been consistently increasing during this past year - a cost that unfortunately has to be passed on to ourcustomers, including fresh produce shippers, through the Bunker Adjustment Factor. This, understandably, makes it difficult for our customers to establish their costs in a market where they often contract with retailers at a long-term fixed price.”
However, container shipping lines are keen to garner greater market share in the fresh produce sector and, over the last year, Maersk Line has introduced new services with a strong focus on perishable cargo.
“Maersk Line is operating the Ecubex service from Ecuador to Europe and this gives banana exporters a viable alternative to shipping in specialised reefer ships. And, with transhipments taking place in [Spanish port] Algeciras, this opens new markets for banana exporters,” Hoffman explains.
Maersk Line has also introduced the EuroMed service, which runs from Israel and Egypt to the UK and the main ports in Europe. Hoffman says the service has been very successful this season, providing citrus and potato exporters with a fast, reliable option.
Damco, which recently won the outstanding partner in supply chain excellence award during the SCM Logistics Excellence Awards ceremony in Singapore, says it is taking a more “holistic”approach to the supply chain. According to Aron Newton, managing director of Damco UK and Ireland, the company is evolving its relationship with the fresh produce segment as the shift from specialised reefer to containerised shipments gathers pace.
Hoffman says that from an operational viewpoint, Maersk Line has enjoyed “a very good year” and has been the best-performing global carrier in terms of schedule reliability. “Not only is this good news for our customers, but it is also a key component to reducing the operational costs associated with vessel delays,” he tells FPJ.
However, overall shipping lines have endured a very difficult year to date. According to Hoffman, the combined losses for shipping companies will run into several billion US dollars and “breaking even has become the new profit”.
“Managing costs has become thekey to survival and continued pressure on freight rates has made several freight corridors unsustainable, unless a reasonable increase in freight rates can be agreed,” he says.
“Shippers forecasting their demand for equipment will become even more important in the coming years, as there is expected to be a shortage of reefer container capacity in the next few years.”
But is market recovery on the horizon? Opinions are divided and some specialists are certain that the downturn will continue for the foreseeable future.
However, others say there are signs that the worst may be over, although trading conditions will remain extremely challenging. “The rebound in the global economy will be subdued and the period before recovery will be prolonged,” says an OOCL spokesman. “Cost pressures continue on different fronts - however, we are optimistic that rate restoration efforts on major trades will gather momentum and help the industry to recover.”
Certainly, following wide-scale restructuring and cutbacks, insiders say the shipping industry is enjoying a slow return to form. But the emphasis is on “slow”, as experts predict that 2010 will be a very challenging year for the containerised reefer sector. “Expected global trade in perishable cargo is anticipated to be at the same level as it was in 2008,” Hoffman explains. “Meanwhile, there has hardly been any new investment in reefer containers taking place this past year, as all container lines have been cash-strapped due to the economic downturn.”
Approximately 30,000 new reefer container units will enter the global fleet, compared to the average of 110,000 units introduced each year over the past few years.
At the same time, Hoffman says shipping lines will continue to slow steam vessels to save on fuel costs, which will stretch the demand for equipment further, as vessels take longer transit times. “We have also seen a sharp decline in the number of vessels in the specialised reefer fleet, with investment in this sector not keeping up with the scrapping of the fleet,” he adds.
However, the recession could also mean that some perishable sectors choose seafreight over airfreight as a way of cutting costs. Some freight forwarders say that an improvement in technology, performance and the overall transportation chain means that more precious cargo, including fresh produce, is being moved across oceans.
Revolutionary products continue to boost seafreight activity and Maersk Line has invested in StarCare, a new type ofcontrolled atmosphere container. “This new container is designed specifically for long-distance routes, in particular Ecuador to the Black Sea, where there is high demand for bananas. The Maersk Line StarCare containerscan keep this fruit fresh and green for up to 45 days,” says Hoffman.
Normally, start-ups are rarer during a global recession, but The Containership Company (TCC) is keen to make its presence felt. The Copenhagen-based firm, founded by Jacob Tolstrup-Møller and Franck Kayser, expects to start operating in 2010.
TCC aims to launch a low-price container ship business model, taking its inspiration from low-cost airlines. “We think we can create earnings in the container ship market by making it simple,” says Tolstrup-Møller. “Our concept is simple and focused on transport from port to port.”
Seafreight is seen as environment-friendly and, according to OOCL, environmental and climate change concerns are affecting the way global business operates. “The threat to our planet remains a very real danger and environmental concerns are set to become fundamental in the next few years; shipping will come under increased scrutiny in terms of its carbon footprint,” says a spokesman.
“There will be more clarity after the United Nations Framework Convention on climate change meeting in Copenhagen this December, but so far, shipping has not been included in the Kyoto Protocol.”
The International Maritime Organisation is debating all options open to shipowners for the reduction of greenhouse gases, including a bunker levy versus a cap-and-trade proposal.
However, OOCL is keen to point out that in terms of food miles and the carbon footprint of goods, shipping is the most environment-friendly form of transport.
Maersk Line has undertaken a number of green initiatives and the shipping firm claims that it is at the forefront of limiting carbon emissions. Earlier this year, it received the Lloyds List Green Shipping Line of the Year Award. “Any saving in reducing carbon emissions is also ultimately a saving in shipping costs,” says Hoffman.
Maersk Line has also recently introduced an all-water service from Valencia to the UK and Scandinavia to give exporters a more environment-friendly logistics solution to roadfreight.
Some sectors within the seafreight industry are greener than others, according to an October study by the Christchurch-based Lincoln University. The study revealed that container ships produce 27 per cent higher emissions of greenhouse gases than specialised reefer ships.
Using the kiwifruit sector as an example, the study focused on shipping emissions and measured greenhouse gases on outward and return journeys. Different shipping routes, ship utilisation and the volume and weight of cargo were also factored into the equation.
“Naturally we are pleased with the outcome of this study, as more and more customers (shippers and receivers) are checking for carbon footprint and food miles,” says Yntze Buitenwerf, Seatrade’s general manager.
In these challenging times, no one can afford to rest on their laurels. “Maersk Line offers very competitive services from all major produce supply countries to the UK and Europe and we are certainly not blasé about our position; we would not be here without the continued support from our customers,” Hoffman says. “Customer service and relationships with our customers will be one of the main differentiators in the next few years as the business becomes more commoditised.”
SEATRADE MAINTAINS POSITION
While not too badly hit by the recession, the specialised reefer sector has felt the influence of container carriers looking for alternative cargoes to carry, according to Yntze Buitenwerf, Seatrade’s general manager.
“We feel a pressure from container carriers due to the collapse of their market,” says Buitenwerf. “Combined with disturbances in the supply of fruit and other perishables, this has impacted on the spot market, which for a long period remained unacceptably low.”
Meanwhile, Seatrade is maintaining its liner services from Ecuador and Central America, carrying bananas, pineapples and other fresh produce, in addition to its liner service to the Pacific and New Zealand, returning primarily with apples, kiwifruit and onions. With its Russian partner, Seatrade is also operating a periodic liner service from Chile to St Petersburg.
“None of these services have been altered or interrupted by any crisis-related issues, unlike many of the liner services offered by others,” Buitenwerf says.
Stronger demand from Russia for fresh produce has further benefited seafreight companies. “Over the past few years, Seatrade has certainly seen an increase in calls at Russian ports and this is partly due to the country’s preference for specialised reefers over containers,” explains Buitenwerf. “With our port-to-port approach to shipping rather than via transhipment, Russian buyers have also been receiving their cargo a lot quicker.”
Although containers are absorbing market share, Buitenwerf says that container vessels are battling to balance their order books and at times have insufficient cargo to transport. In contrast, Buitenwerf argues that the specialised reefer industry appears to be more balanced.
“In recent years, older tonnage has been scrapped when bunker prices were exorbitant, and few vessels were ordered due to high steel prices and long waiting times at the few shipyards that can build a good-quality, specialised reefer,” Buitenwerf says.
Although Seatrade has not made any significant investments in the last year, it will begin taking delivery of the first of its new builds, ordered in Japan, next year.
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