Monday, 22 December, 2008

Shipping lines rationalise services

The turbulence from the meltdown is finally crushing the shipping industry, which appears to be increasingly headed for the docks because fewer companies are ordering goods for transport. The sinking fortunes of the shipping industry have seen a reduction of traffic on key trade routes; cancellation of new ship orders and plummeting cargo rates. Adding to their woes is ‘piracy’ which has sent ship owners scampering for quick fixes.

“Piracy is on the increase and insurance companies are getting set to raise premium,” stated S.S. Kulkarni, secretary general of Indian Shipowners Association of India (INSA). “If it gets jacked up immensely then ship owners will be forced to take the route around the Cape of Good Hope. Some ship owners have already taken the decision but none of the Indian ship owners have yet done so. International Association of Dry Cargo shipowners (Intercargo) and the International Association of Independent Tanker Owners (Intertanko) are two global trade bodies that have started asking their members to do so. This would mean an increase of at least two weeks additional voyage time.”

“You will see lines coping with different situations by rationalisation of their services,” says Marc Bourdon, General Manager in India of CMA CGM. “This is what is happening today. We are seeing rationalisation of services to ensure that costs go down. We re-adapt our services to suit the market conditions which is not an easy exercise whether it is done by reducing the services, re-routing etc whatever is required to rationalise. That is what all of the industry has to do today.

“Piracy is affecting all the shipping lines operating through the Suez. We too use the operated route like all shipping lines and it is affecting our quality. Diverting ships will have deep-rooted consequences but if the situation deteriorates any further, then we will have to use a different route. It is a complex world wide exercise. There is nothing special we have for India at the moment as such.”

Amongst the first to take evasive action has been the Seaarland group of companies and Motia Compagnia di Navigazione. Both have acted to ensure the safety of their crew, ships and cargoes until the escalating piracy situation off East Africa in the Gulf of Aden is brought under control.
Antonio Zacchello, managing director of the Seaarland group of companies and Motia, says, "We at Seaarland and Motia feel that we have to act to protect our crew from piracy attacks. Accordingly, we have instructed our masters and informed all our customers that until further notice our vessels will be routed to avoid the Gulf of Aden and asked to go as far offshore as is practical if they have to transit the East African coast. We shall also be taking all other precautions on board to deter piracy as we see fit during the present crisis. And we urge the navies in the area, and the major developed nations which depend on world trade through the Gulf of Aden, to act firmly and promptly to restore security to the area. Our seafarers deserve better protection."
Taiwan’s TMT, one of Asia’s biggest shippers has joined the growing list of operators openly diverting their tankers via South Africa because of fears over attacks in the Gulf of Aden. The 20-strong fleet is regularly used to ferry crude oil from the Middle East to consumers in Europe.
Ship brokers say that decisions by big tanker firms to skip the Suez Canal and take the longer voyage around the Cape of Good Hope would add an extra 15 days to ferry oil from the Gulf to Mediterranean refiners, twice the normal time and distance. Delivering crude oil and petroleum products from the Gulf to consumers in northern Europe would take an extra 14 days journey, on top of the typical 19 days through the Suez, they said.
Maersk Line has announced the lay up of eight 6,500 TEU (twenty- foot equivalent unit) vessels. The decision follows the recently announced changes in their Asia - Europe, Asia - Central America, and Trans-Pacific service networks. This resulted in surplus vessel tonnage, which will not be re-deployed in their service network.

"In view of the market conditions, we have reached the point wherelaying up the eight vessels makes better economic sense than re-deployingthem," says Michel Deleuran, Head of Network and Product in Maersk Line. “Maersk Line will continue to adjust capacity in the light of market developments by optimising our schedules, consolidating services, vessel sharing agreements (VSA), enhancing port productivity, economical sailing (reducing speed), and - unless current market conditions improve – additional laying up of vessels.”

“By laying up the ships the operating expenses of the vessel owner comes down,” pointed out Hanoz Mistry, director of Five Star Chartering Private Ltd. “They retain the minimum crew on board. Thus the cost is reduced by 50%. However, the full effect of the recession has not been felt in the case of container vessels which carry consumer goods. But once the winter is through the tanker trade will feel the pinch.”

The free fall of shipping charge prices and the mothballing of new vessels are not the only measures of the perfect storm of extra tight credit and worldwide economic retrenchment that is now hitting land. Adding more ports of call appears to be a better alternative for container lines. On the Europe – Far East route CMA CGM (7 ships, among which the carrier’s first of total sixteen 11,000 TEU leviathans on order) and Hyundai (2) are to extend the rotation of their joint Europe-Far East (FAL1) service to include the South Korean ports of Busan and Kwangyang.

“More than piracy it is the threat of extinction that is playing on the minds of ship owners,” says Mr. Kulkarni. “Tanker trade at the moment is steady but they feel that this also may crash as the demand is falling as there is little movement of cargo. There is a move in Europe to bail out the automobile industry. This is what the shipping industry in India needs at the moment. These are the times when shipowners would have replaced their aging fleets with new ships but unfortunately there are no funds available to them. But survival could be a problem. Softer loans should be made available to the shipowners.”

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