The advent of ultra-large container carriers and mega-alliances among liner shipping companies will be dominant talking points at this year’s TOC CSC Europe conference, taking place 24-26 June at London’s ExCel Centre under the headline theme “Making Sense of Scale”.
Two of the senior industry analysts speaking on this topic are Martin Dixon, Director and Head of Research Products at Drewry and Andrew Penfold, Project Director at Ocean Shipping Consultants, who took part in a Q&A session to set the stage before the live debate.
Q: As the wave of giant container vessels comes on stream what do you see as the main implications – positive and negative?
Martin Dixon: “The deployment of larger vessels in conjunction with new alliance formations will enable carriers to lower their slot costs. And given the highly competitive nature of the container shipping market, this will feed through into lower long term freight rates.”
“However, the short term implications are rising overcapacity and cascading of vessel capacity from the main East-West trades to smaller North-South and intra-regional trades which is unsettling the market.”
Andrew Penfold: “We anticipate that other shipping lines who have not committed to giant ships will be under intense pressure to follow suit. The perverse effect of this could be to prolong the overcapacity even further.” “
Very large ships will also definitely mean more transhipment and therefore, from the shipper’s point of view, more potential for links in the chain to be broken. And I don’t believe we have reached the ultimate size yet.”
“We will likely see 22,000TEU vessel orders within 18-24 months, with ships breaking the 400m length barrier. While cascading is a complicated decision for carriers, it is indeed accelerating. This is putting pressure on ports in regions such as Latin America, India and Africa.”
Q: Further carrier alliances are set to have a big impact on east-west container trades. Will moves such as P3 bring freight rate stability or likely increase price volatility?
Martin Dixon: “Drewry’s view is that the new mega-alliance formations will bring some stability to container shipping, in so far as they will enable alliance carriers to better deploy capacity. However, overcapacity will contribute to continued freight rate volatility as the practice of frequent GRIs and skipped sailings in a weak market will continue to unsettle pricing.”
Andrew Penfold: “I am not convinced of the durability of these major alliances. They are essentially defensive moves. They got together to manage tonnage oversupply, but that could change in 3 to 4 years if the oversupply issue is resolved, despite that fact that P3 is billed as 10-year alliance.”
Q: How will new carrier alliances impact European port dynamics?
Martin Dixon: “Larger ships are challenging ports, with fewer vessel calls but many more container moves per call, with the potential for some landside congestion both within terminals and for hinterland transportation. Those ports that rise to this challenge stand the best chance of taking advantage of new carrier alliance formations.”
Andrew Penfold: “These alliances were never designed with terminal operations in mind – they were a tonnage management strategy. But P3 and other similar moves throw the issue of terminal-carrier relations into sharp relief and the cleverer stevedores have entered joint venture agreements for effectively dedicated terminals.”
“Third party terminals have not just been sitting idly by, but are in a much less comfortable position than a line-owned facility. This will shake up European port dynamics and no-one knows yet where the sticks will land.”
Q: What is the principal message you would like to get across to the supply chain professionals gathering at TOC CSC?
Martin Dixon: “The combination of economic uncertainty and oversupply of shipping capacity means that the container shipping market will remain unstable and freight rates very volatile for the foreseeable future.”
Andrew Penfold: “Over the best part of 30 years, I don’t think the liner shipping industry has ever been in balance. Thinking about the cargo owners, they can expect a prolonged period of low freight rates.”
Martin Dixon and Andrew Penfold will participate in the debate Shipping Watch: Carrier Alliances, Schedules and the Supply Chain Impact on Conference Day 1 Tuesday 24 June.
May 30, 2014