Container shipping and logistics has come a long way over the past year and we’ve seen a number of developments never seen before in the sector’s history. Intermodal Eye takes a look back at how the business has evolved in 2014…
1. LET’S GET TOGETHER: MARKET CONSOLIDATION
While not necessarily a new development, market consolidation gathered pace in container shipping this year. Cooperation between companies has become critical in light of ever-decreasing freight rates in a sector in which analysts say capacity outstrips demand by around 22%. Today, 16 of the world’s 20 biggest container lines are participants in container shipping consortia.
Chinese regulators denied the P3 Alliance in June under China’s company merger rules. The alliance would have seen a joint vessel-sharing agreement made up of the world’s three biggest container-shipping companies by capacity: Denmark’s Maersk Line, France’s CMA-CGM and Switzerland-based Mediterranean Shipping Co (MSC). P3 would have handled up to 40% of total container cargo moved by sea worldwide.
Since then, three major alliances have been formed this year:
– 2M: An alliance between Maersk Line and MSC, formed after the proposal for P3 was rejected. It will operate from early 2015 to 2025.
– Ocean Three: Kuwait-based United Arab Shipping Co (UASC), CMA CGM and China Shipping this year announced their plans to cooperate. Ocean Three will be launched in early 2015.
– CKYHE: Formed this year when Taiwan’s Evergreen joined the existing CKYH alliance made up of China’s Cosco; Taiwan’s Yang Ming, Japan’s K Line and South Korea’s Hanjin. CKYHE began operations in April this year.
These consortia come in addition to the G6 alliance, which was formed last year and comprises: Orient Overseas Container Line (China); NYK (Japan), Hapag-Lloyd (Germany), Hyundai Merchant Marine (South Korea), MOL (Japan) and APL (USA). It is effective until March 2016 and will be extended on a year-by-year basis.
2. SIZING UP: BIGGER VESSELS
As seen in previous years, the move towards high-capacity ultra-large container vessels (ULCVs) continued unabated in 2014.
China Shipping’s 19,100-TEU CSCL Globe was officially delivered in November, making it the largest containership afloat – but not for long. In January, MSC will take delivery of its latest vessel, the 19,224-TEU MSC Oscar.
In August, Monaco-based Scorpio Group placed an order for the construction of three 19,200-TEU ULCVs, which will be chartered to MSC. Delivery is expected in 2016. China Shipping Container Lines and United Arab Shipping Co also both have a number of 19,000-TEU ships currently under construction for 2016 delivery.
As Intermodal Eye investigated last month, this new raft of super-huge vessels seems to be outpacing the development of the rest of the container supply chain and is complicating inland logistics. Questions have also been raised over some safety aspects of ULCVs – few ports would be able to accommodate these vessels in the event of an emergency. Hopefully, 2015 will see some decisive action.
3. STEP ON THE GAS: FALLING BUNKER PRICES
Crude oil fell to its lowest price in five years last week – the price has halved since June and bunker prices have followed suit. Over the past six months, 380CST bunker prices have fallen from a high of $600-625/tonne in June to between $377 to $340/tonne on December 11.
These low prices are a win-win situation for container carriers, but shippers are likely to benefit most.
Prolonged lower energy prices should stimulate consumer and corporate spending (outside of oil-dependent economies/sectors), analysis by Drewry Shipping Consultants says. Higher demand should translate into better ship utilisation, as long as carriers do not speed ships and increase the effective slot capacity. As a result, this will reduce the average bunker slot costs for carriers.
Shippers will, however, expect to see much of those fuel savings passed on, which will undermine carriers’ attempts to lift freight rates.
ULCVs, however, will lose some of their competitive edge while these low bunker prices persist. Based on 100% ship utilisation, lower fuel bills narrow the cost advantage of ULCVs, making the economies of scale offered by a 12,000-TEU vessel almost as good as those offered by an 18,000-TEU vessel, Drewry says.
4. HEAVY ISSUE: CONTAINER WEIGHT VERIFICATION
In November this year, the Maritime Safety Committee (MSC) of the International Maritime Organisation (IMO) officially adopted amendments to the Safety of Life at Sea (SOLAS) convention.
When these changes enter into force in July 2016, the convention will require the weight of all loaded containers to be verified by the shipper. Verification can either be done using calibrated and certified equipment or using the IMO’s ‘calculated weight’ method.
As Intermodal Eye highlighted in May, many questions remain over how exactly the new rules will be executed and enforced. For instance, who will be in charge of weight verification at terminal sites? At what point in the supply chain will it be performed? We can expect a lot more debate on this issue next year and the year after.
This blog will continue to keep an eye on and dissect all the latest developments in the industry. Intermodal Eye wishes you a very happy Christmas and a happy new year!