Global container shipping market upheaval sees port services firms concern over bigger ships
The global container shipping market looks set for an historic consolidation but what it heralds is starting to raise concerns amongst those who handle boxes once ships tie up at port.
Amid the worst container shipping rates in memory, logistics players in Australia and elsewhere have watched for signs of a long-awaited structural correction amongst global containership owners and operators.
The first major crack in the status quo appeared earlier in the year when fears for the financial health of South Korean operator Hanjin surfaced and were then vindicated in August and September.
This week, three Japanese shipowners – Mitsui OSK Lines (MOL), Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha (K-Line) –announced the merger of their container businesses amid speculation that Taiwan’s big three – Evergreen Marine, Yang Ming Marine Transport and Wan Hai Lines – will be forced to follow suit.
Now the world’s biggest containership owner, Denmark’s AP Moller-Maersk, has backed consolidation as a solution to the industry’s chronic overcapacity, news service Bloomberg reports, just as the company unveiled a 43 per cent fall in third-quarter profits due in part to low container rates.
But what is emerging in Australia is a worry about where this is leading and how it will affect the containerchain locally as far as the trend in larger-capacity containerships is concerned.
Initial ATN questioning of trucking, ports and stevedoring sources indicates the logic of containership rationalisation leading to only the biggest and therefore most efficient ships that Australis’s major container ports can handle being sent here is viewed very seriously.
Container Transport Alliance Australia director Neil Chambers says the continuing arrival of bigger ships is already testing the resilience of container service providers.
“From a landside logistics perspective, the one modern phenomenon that is being dealt with increasingly, particularly as vessel sizes increase, is the ‘surge effect’ brought about by larger container exchanges by larger vessels calling less frequently, in relative terms,” Chambers says in a written response.
“In other words, as the vessels get larger and discharge / pick up more containers per ship visit, the landside logistics sector needs to ‘gear up’ to deal with greater peaks (and troughs).
“When you also get ‘ship bunching’ as vessels arrive in port off their berthing window, this ‘tsunami’ effect can increase.
“This means that container transport operators need more equipment (trucks, trailers, drivers, etc.) to handle the peaks, and in some instances the landside wharf (container terminal) interface can be stretched (i.e. lack of available container slots, terminal congestion, queuing delays, etc.).”
He is certain further consolidation in the international container shipping line sector is in the offing.
“With this will come a rise in rates, but history would suggest that this might be patchy and will be route specific,” he says.
ATN is awaiting full responses from other port-related players.
For their part, the Japanese lines have made clear that their agreement will be closer than the carrier alliances that independent companies undertake traditionally to bring some order to the market and that it only affects their container shipping businesses.
In explaining their reasoning, NYK says: “Although growing modestly, the container shipping industry has struggled in recent years due to a decline in the container growth rate and the rapid influx of newly built vessels.
“These two factors have contributed to an imbalance of supply and demand which has destabilized the industry and has created an environment that is adverse to container line profitability.
“In order to combat these factors, industry participants have sought to gain scale merit through mergers and acquisitions and consequently the structure of the industry is changing through consolidation.
“Under these circumstances, three companies have now decided to integrate their respective container shipping on an equal footing to ensure future stable, efficient and competitive business operations.”
According to the Japanese lines, their deal’s basic facts and figures are:
- Shareholders/contribution ratio – K-Line 31%, MOL 31%, NYK 38%
- Amount of contribution – Approx. ¥ 300 billion (including fleets, share of terminals as investment in kind, total worth A$3.78 billion)
- Business domain – container (Including terminal operating business excluding Japan)
- Fleet Size – Approx. 1.4 million TEU (20-foot equivalent unit) capacity, 6th in the market with approx. 7% of global share
- Agreement date: October 31, 2016
- Establishment of the new joint-venture company: July 1, 2017 (planned)
- Business commencement: April 1, 2018 (planned).