RLL Container Report - 02 July 2014
From: John Keir, Ross Learmont Ltd Email: john.keir@telia.com Date: 02 July 2014
It’s party time in China and Brazil!
In June, Chinese regulators rejected plans for the proposed P3 group consisting of Maersk, MSC and CGM. It was deemed that the trio’s dominant position in the Far East to Europe trade should not be allowed to grow. The P3 grouping was proposed as a means of reducing spiraling costs, especially on routes with a high level of empty returns. The intention had been to pool resources in order to take out one 12,000-teu vessel on the route from Asia to N Europe and another 10,670-teu vessel on the weekly service between Asia and the Mediterranean. The three P3 members had all ordered vessels of roughly the same size and performance, which would have allowed the group to offer the market the same frequency and quality of service, while at the same time withdrawing vessels and redeploying these to other trades.
The surprise Chinese move coincided with reports showing a jump in box traffic on intra-Asian routes. Cosco and its partners now deploy four vessels averaging 4,300 teu on the service calling Xingang, Dalian, Shanghai, Fuzhou, Hong Kong, Singapore, Port Klang, Penang and Singapore. NYK have even larger 5,000-teu ships serving its weekly Japan-China-Thailand service. Maersk's recently introduced Southeast Asia-China service deploys three 4,000-teu ships, which call at Xingang, Qingdao, Ningbo, Hong Kong, Tanjung Pelepas and Singapore. The lines are able to take vessels from other trades, such as the Asia-Europe or Asia-N America, where 5,000 teu ships are being replaced by ships with a higher capacity.
The decision by the Chinese regulators will place a temporary halt to the proceedings but as the English king, Canute learned “time and tide wait for no man”. Already, plans are being drawn up to design and construct vessels with a capacity of 24,000 teu. Crucially, the vessels’ draught should not be greater than that of the 18,000 teu vessels currently coming out of Korean yards. Ocean Shipping Consultants calculate that at-sea costs would be 23% lower for a 24,000 teu vessel compared to a 12,500 teu boxship, while they were 17.4% less when compared to a 16,000 teu craft. These new giants of the sea could be under construction by 2016 and ready for sea trials two years later.
Of course, this raises the age-old question: where will the cargo come from to fill all those extra slots? Fortunately, we need look no further than our television set for the answer. The whole world is enthralled by the fiesta of football being served up by our friends in Brazil. Forget about all the naysayers and jeremiahs, who predicted it would be a giant train crash: this is what football is all about. Our Brazilian cousins are leading us all to the “Promised Land”, where goals are scored by the bucket-load and the final is decided by an epic encounter in the magnificent Maracana stadium.
The Kings of the Copacabana are also showing the world where the future of containerization lies. Just an hour’s drive from the Curitiba stadium, which hosted Russia’s match against Algeria, lies the port of Paranagua. The economy of the city of Paranagua is dominated by its deep-water port, the largest exporter of agricultural produce in Brazil, mainly in the form of grain from the southern regions of this vast land. The port is also a major trading centre for automobiles, fertilizer, lumber, paper, petroleum products, salt, soybeans and sugar. The port has just taken delivery of four new container cranes from ZPMC in Shanghai. Together with an extended berth, the cranes will lift the terminal’s annual capacity to 1.5 million teu. In 2011, Paranagua handled 681,678 teu and much of the projected increase will come from the containerization of agricultural products.
For those with less time to spare, you could take the 170 km drive from the Dynamo Stadium in Vladivostok to the sleepy port of Slavyanka. Here, Chinese, Russian and Hong Kong investors plan to build a container terminal along the same lines as the one in Paranagua. In June, Tranzit-DV signed an agreement with Chinese partners to develop Slavyanka into a container port handling up to 10 million tons of agricultural cargo per annum. The Slavyanka terminal would solve a major logistical problem for exporters from N E China, who currently have to send their cargoes 1,500 km south to the Port of Dalian. Part of the project includes an upgrade to rail and road connections which could dramatically reduce transit times and costs. Coincidentally, Summa is working on plans to develop the neighboring port of Zarubino into a major grain terminal also serving Chinese cargoes.
Transit-DV may be joined by the Hong Kong-based Noble Group, a commodity trader with interests in the agricultural sector in Brazil as well as Ukraine. Noble has an oilseed crushing facility in Rondonopolis with a capacity of 4,000 tons of soybeans per day. The company’s largest single investment cluster consists of four state-of-the-art sugar mills in the prime sugar-growing belt in the São Paulo province of Brazil. The head of the Noble Group recently drove down from Vladivostok to Slavyanka to view the local facilities. Everything now hangs on a simple question: how fast will agricultural products be containerized?
For the answer to this question, we turn to another group of Chinese officials, who in June stopped issuing permits for the import of distilled dried grains (DDGs) from the USA due to the presence of an unapproved genetically-modified organism. The problem is that the organism was found in a bulk shipping consisting of 250,000 metric tons and now all quarter of a million tons have to be re-exported or destroyed. Had the cargo been containerized, the offending organism could have been traced back to its source, the suspect shipments could have been quickly isolated and the damage and costs severely restricted. China needs these DDGs to feed 600 million pigs, which in turn feed its growing population, so a quick and simple solution has to be found. The answer is to box the DDGs and all other containerizable agricultural products, which would allow complete and immediate traceability from field to plate.
So, while one set of Party officials discourages the growth in container ships, another group of Party officials indirectly encourages the full containerization of agricultural commodities. All this goes on while Brazil holds the biggest and best party of all.
John Keir, Ross Learmont Ltd.
02 July 2014
Copyright ©, 2014, John Keir