RLL Container Report - 29 November 2017
From: John Keir, Ross Learmont Ltd. Email: john.keir@telia.com Date: 29 November 2017
Surely, it’s an open and shut case. Or, is it?
There is little doubt that the big story of intermodal transport in the broad gauge region in the first half of 2018 will be the sale of Transcontainer. While the rules for the sale are being set out, there remains the question of which part of the sale will be the better buy. Conventional wisdom suggests that one should bid for the rights to operate the container trains and develop a strategy of increasing the number of journeys and therefore slots on offer each month. After all, what is an intermodal system without its trains, platforms and engines? These are the basic building blocks that attract the customers and therefore the cash. At the same time, however, these are also the crucial elements that burn up cash and grow out-of-date and out-of-fashion rather quickly.
If the government is determined to have real competition in the container market that must mean that new entrants will continue to appear on the scene with brand new trains, platforms and containers. These will, in turn, show up the TransContainer rolling stock, which will suddenly appear jaded and weatherworn. Why do you think the big lines are forever renewing their box carriers? Well, they get all the coverage of a brand new 20K plus vessel on its maiden voyage, while the reality is that the average age and average sailing speed of the vessels in the fleet is little changed. The container vessels, which are replaced by the new, shiny vessels, are redeployed on alternative routes that do not have the same cache as the Blue Riband service between Asia and Europe.
Nevertheless, these tried and tested carriers are contributing to the company profits and in the end investors are only interested in the return on capital rather than a month-long, leisure cruise on a box carrier out of Shanghai to Rotterdam. “A box is a box” and a container vessel is just that - a rather unglamorous means of transporting large volumes of goods from A to B. At the same time, one should not forget that many of the trade routes are highly imbalanced with most vessels returning to the Far East with thousands of empty units. Of course, replenishing box supplies in the major terminals of the Far East is as equally important as transporting laden boxes to customers in the major money-spinning markets of Europe and North America. But why spend vast sums of money on brand new equipment, when a large percentage of the time they are not generating any income?
Many potential bidders wishing to take over the reins from Transcontainer, may want to study the profit-generating potential of the terminals that may now offer services to a far more diversified range of clients. These will, in turn, operate more sophisticated and varied equipment, while offering value-added services to the major producers, who will represent the next big phase of intermodal development not only on the broad-gauge network but all around the globe. If a terminal operator can survive in a tough and highly competitive environment such as the broad-gauge network, then the world is his oyster. That global perspective is not necessarily an option open to the prospective buyers of the Transcontainer core business, who may be restricted to their large but domestic market.
John Keir, Ross Learmont Ltd.
29 November 2017
Copyright ©, 2017, John Keir