one belt one road

Traffic rising on the Silk Road

Rail freight traffic from Europe to Chongqing in China exceeded traffic in westbound direction in 2018. The number of trains travelling from Europe to the southwestern Chinese city reached 728, out of a total of 1,442 freight trains in both directions. This is the first time that eastbound traffic was more than westbound movement.

Westbound traffic between China and Europe has traditionally accounted for the majority of the volumes on the New Silk Road. The return of empty containers to China has been a dilemma for operators, as it is a costly procedure, pressing the optimal use of Chinese funding tools. Creating a balance between east- and westbound traffic has been one of the main aims of operators active on the New Silk Road.

117 per cent growth

The number of trains traveling back to Chongqing surpassed the number of outbound trains for the first time in 2018, said Yuxinou (Chongqing) Logistics Co in a Xinhua report. In general, traffic between the Chinese city and Europe witnessed a surge last year: the volumes increased by 117 per cent, according to the Chinese media source.

Although recent figures have not yet been announced by other provinces, the imbalance between east- and westbound traffic is witnessed in many other Chinese provinces. For example, trains between Tilrburg in the Netherlands and Chengdu in China accounted for 235 in 2017, of which 102 trains were in the eastward direction.  Only half were fully loaded, explained Jialu Zhang, representing CIPI in Tilburg.

Imbalance

“The imbalanced volumes of import to and export from China has created challenges for the further development of the round-trip rail services. Therefore, promoting and stimulating the export trade from the Netherlands to China by rail has become one of the essential task for both GVT and its Chinese partner”, Zhang explained earlier.

Following an equal trend in deep sea freight transport, eastbound traffic requires more incentive and thus, market prices along this route are lower than in the other direction. While eastbound freight rates are subsidised by about fifty per cent, in the direction of Europe this accounts for 25 per cent,” explained the Group of European TransEurasia Operators and Forwarders (GETO) in earlier comments.

End of subsidies

Once the balance of export and import is there, train services should be able to operate without subisidies, is the general understanding. Although not confirmed, many have suggested that the Chinese subsidies will be phased out starting from 2020. “Most railway managers and operators are likely to push the downward trend of actual costs, an indispensable trend to safeguard the train offers for the long term in especially the eastern direction”, GETO explained.

Moreover, an increase in eastbound traffic serves the rail freight industry in that rolling stock is used more efficiently. As almost twice as many trains depart in western direction, rolling stock often gets stuck in Europe, resulting in storage costs or the return of empty equipment by rail. “In rail freight, the return of empties can cost approximately fifty per cent of the rate.With increasing volumes in eastern direction, the situation is improving. The increase in eastbound traffic supports the return of locomotives, rolling stock as well as container equipment and thus, the cost of rail freight is decreasing by each percentage we increase eastbound traffic,” noted GETO.

Chongqing as a pioneer

Chongqing was the point of departure of the first train connection on the New Silk Road. In April 2015, the first regular cargo train departed from the southwestern city in the direction of Duisburg, Germany. It did so crossing the Chongqing-Xinjiang-Europe international line, which was established in 2011. What used to be a weekly service, had now become a service running three times a week. Since the start of this service, the number of trains going back and forth have quadrupled.

Currently, trains originating from Chongqing reach over thirty European countries, and the goods brought back are transferred to other Chinese cities and destinations in Southeast Asia. In November last year, the first train on the new railway link between Mannheim and Chongqing arrived. Chongqing was also connected to the UK with a new service from C.H. Robinson, linking eight cities in China and eight cities in Europe, with the most western destination being Barking in the UK.

New routes

New and extended connections to and from Chongqing are also planned for 2019. This month, a new connection from Chongqing to Minsk, Belarus has commenced. The first train departed on 4 January and will also stop in the Russian city of Vorsino. It runs three times a week in one direction. The block train from Chongqing to the Polish border city of Malaszewicze will run every day, and to the Polish capital of Warsaw every Sunday, according to Smile Logistics.

Source: Railfreight.com

MOL Triumph

2019 supply and demand balanced by less mega container ships

A “reduced appetite” for ordering ultra-large container vessels (ULCVs) and carriers instead aspiring to become global logistics integrators could finally balance container capacity supply with demand, according to new analysis from Drewry.

Indeed, at the end of last year Maersk’s chief executive, Soren Skou, told The Financial Times: “We for sure have to do some acquisitions in the logistics space, primarily to gain capability and scale.”

Currently, Maersk Line has just three ships on order and appears unconcerned that 2M partner and rival MSC is narrowing the capacity gap and South Korean HMM has returned to the shipyards in a big way.

“Aside from feeder ship replenishment, there has been no reaction from other lines to HMM’s mega-ship order and as such we have greatly reduced our projected orders for 2020 onwards,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster.

In September, HMM placed an $2.6bn order with South Korean yards – underwritten by funds from the state-owned Korea Ocean Business Corporation – for 12 23,000 teu and eight 15,000 teu ships for delivery from the first quarter of 2020.

Weaker global macro-economic drivers have contributed to a downgrade in Drewry’s port throughput forecast for this year to growth of approximately 4%, but it said the “softening trend should be mitigated by changes made on the supply side to better balance the market”.

It said that since its last forecast, the delivery of several newbuilds has been pushed back to 2020 and, with an expected increase in scrapping this year, the net addition to the container fleet this year is expected to be less than half that of 2018, at just 2.5%.

According to Alphaliner the global cellular fleet as at 31 December 2018 stood at 5,284 ships for 22.3m teu, representing a year-on-year growth of 5.7%, which included 165 delivered during the year, equating to 1.3m teu, while only 66 vessels, 111,000 teu, were scrapped.

Most analysts are predicting demolition levels this year will increase, back to levels seen in recent years, as older, high fuel-consuming vessels are taken out of service ahead of the IMO’s 1 January 2020 low-sulphur regulations.

Drewry also expects capacity curbs associated with IMO 2020, as ships are temporarily taken out of service for the retro-fitting of scrubbers that will enable the vessels to continue to bunker with less-expensive heavy fuel oil.

Moreover, it said that wider use of slow-steaming to lessen the impact of higher fuel costs would also help absorb new supply.

“This subsequently feeds into a much brighter supply-demand index forecast for carriers through 2022,” said Drewry, adding that, notwithstanding the slowing demand growth, the change in supply dynamics would contribute to “better freight rates and profits” for the container lines.

“Last year was one of the most unpredictable container shipping industry has faced,” said Mr Heaney, adding that he expected this year to be “similarly volatile” due to uncertainties associated with the US-China trade war and the new fuel regulations.

However, in an upbeat conclusion to its review, Drewry is predicting “another solid year for the market”.

And so far the evidence is that carriers are taking no chances that excess capacity will promote a new damaging “race to the bottom” for freight rates, by blanking a number of voyages on their east-west networks in the softer demand weeks around the Chinese new year holiday.

Source: The Loadstar

2019

What can the container port industry look to expect in 2019?

As we welcome in 2019, Drewry have shared their thoughts on the key issues and trends likely to affect the container ports and terminals sector in the year ahead.

Demand: We will see a softening of the global container port demand growth rate, down from an estimated 4.7% in 2018 to just over 4% in 2019 (although 4% is still very respectable and adds over 30 million teu to the world total). However, the projection for 2019 is highly uncertain due to the US-China tariff wars, Brexit etc. So there is a big caveat.

Capacity: We can expect to see continued caution by investors and operators in terms of investment in new capacity because returns are not what they used to be. Even Chinese players may be affected if China’s economy slows markedly (see above). Greenfield expansion projects will be the area hardest hit. Nevertheless, a global capacity addition of over 25 million teu can be expected in 2019, representing a spend of ~US$ 7.5 billion

Ships: The good news for the industry is that there will be no significant increase in maximum container ship size (maximum teu intake is going up but physical dimensions are not). However, cascading will still be very much at work across all trade routes, and each port will see increasing pressure on whichever berths are able to handle the biggest ships (and increased obsolescence of older berths).

IT: The opportunities offered by digitisation/automation/blockchain/smart ports/IoT/hyperloop (the list goes on) will continue to be vigorously explored by both terminal operators and port authorities. However, the big challenge remains: how to find the way through the minefield of options to focus on what will really work and what has the best potential.

Supply chain: Linked closely to the above, terminal operators and port authorities will continue to seek to expand their activities beyond the port gate into the wider supply chain, to try and diversify sources of revenue, tie in traffic and get closer to cargo owners. But it’s a crowded field, with the heavyweight liner shipping companies aiming to do the same thing. Remains to be seen if anyone can succeed at it.

Profit: Despite all the above challenges, the global container terminal industry will remain a very solid, profitable business. The 2019 industry throughput of over 800 million teu should generate EBITDA in excess of US$25 billion.

Source: Drewry.co.uk

future of shipping

New bunker adjustment fees keep spot rates firm

Asia-Europe ocean carriers from have announced further hikes in their FAK rates this month after successfully pushing through 1 January spot rate increases.

Alphaliner said rates on the route “remained firm in December, despite the resumption of the 2M’s AE2/Swan service”.

Hapag-Lloyd said that on 16 January, “due to strong demand”, it was increasing its FAK rates  from Asia to North Europe and the west Mediterranean to $2,200 per 40ft.

Maersk Line has increased its FAK rates to $2,300 per 40ft and CMA CGM has will raise its FAK rate by $200 to $2,400 per 40ft from 15 January.

This follows a surge in spot rates in the final week of last year, which saw the North Europe component of the Shanghai Containerized Freight Index (SCFI) leap 14.2% to $996 per teu, with spot rates for Mediterranean ports jumping 15.3% to $967 per teu.

There was no further increase for North Europe in today’s SCFI, although the Mediterranean saw a further increase of 3.1% to $997 per teu.

Moreover, since 1 January, carriers are implementing new bunker surcharge formulae, based on October/November fuel prices, which were a third higher than they are currently, at around $320 per tonne. So shippers should see the fuel surcharge element of their rates reduce in the coming months in line with the decline in bunker costs.

Elsewhere, the bear run on transpacific spot rates, which has seen prices tumble 32% and 24% respectively for Asia to the US west and east coasts since early November, was halted in the final week of 2018. In week 52, the SCFI recorded a 6.8% increase in spot rates for the west coast , to $1,883 per 40ft, and for east coast ports there was a jump of 9%, to $2,998 per 40ft.

The momentum continued this week, with the SCFI recording a 2.7% uplift for rates to the west coast to $1,933and to the US east coast by 4% to $3,119.

Phase 2 of the implementation of 25% tariffs on the import of over 5,700 Chinese goods is currently set for 2 March.

Source: The Loadstar

maersk

Sea Machines gains financial support to develop autonomous containerships

The prospect of unmanned container vessels serving global container supply chains has taken another step forward.

Sea Machines Robotics, a US developer of autonomous vessels, announced it had raised $10m from venture capital funds.

The investors were led by Accomplice VC and Eniac Ventures, but also include Toyota AI Ventures, TechNexus Venture Collaborative, NextGen VP, Geekdom Fund, Launch Capital and LDV Capital, and brings Sea Machines’ external funding up to $12.5m.

Boston-headquartered Sea Machines, which in April signed up Maersk Line to pilot its “perception and situational awareness technology aboard one of the company’s new-build Winter Palace ice-class containerships”, said it would use the new funds to grow its R&D and engineering teams as well as expand its sales efforts globally.

“We are creating the technology that propels the future of the marine industries and this investment enables us to double down on our commitment to building advanced command and control products that make the industry more capable, productive and profitable,” said Michael Gordon Johnson, founder and chief executive.

Jim Adler, founding managing director of Toyota AI Ventures, added: “We believe autonomous mobility can help improve people’s lives and create new capabilities – whether on land, in the air or at sea.

“Sea Machines’ autonomous technology and advanced perception systems can reduce costs, improve efficiency and enhance safety in the multi-billion dollar commercial shipping industry. This marks our first investment in the maritime industry, and we’re excited to embark on this journey.”

Vic Singh, founding general partner at Eniac Ventures, added: “The level of traction Sea Machines has from the global maritime industry is a tell-tale sign that the industry is the next frontier for autonomy.”

And Michael Rodey, senior manager at AP Møller-Maersk, said: “I think this investment sends a strong signal on the types of technologies that will come to define the maritime industry in the future.”

Source: The Loadstar

air freight

Happy new year as air freight marks a decade ‘in the black’

IATA claims global aviation is on course for a “decade in the black”.

However, the annual pace of growth in cargo is well below last year’s “exceptional” performance.

Despite the slowdown, the association remains relatively positive about future growth, albeit it at a slower pace.

“The expected 3.7% annual increase in cargo tonnage next year to 65.9m tonnes (up from 63.7m in 2018) would be the slowest pace since 2016,” it said.

“This reflects a weak world trade environment impacted by increasing protectionism. Cargo yields are expected to grow by 2%.”

Pointing to lower oil prices, alongside “solid, albeit slower” economic growth as drivers of profitability, it said next year would be the 10thconsecutive year of profit.

Not only that, but 2019 would also mark the fifth consecutive year in which airlines had delivered a return on investment, with IATA chief executive Alexandre de Juniac sounding “cautiously” optimistic.

“We had expected that rising costs would weaken profitability in 2019, but the sharp fall in oil prices and solid GDP growth projections have provided a buffer,” he said.

“So we are cautiously optimistic the run of solid value creation for investors will continue for at least another year; but there are downside risks as economic and political environments remain volatile.”

Regionally, North America is entering 2019 on the front foot, reporting the fastest rate of growth globally, with demand up 6.6% year on year for October.

And while all regions reported growth in October, Latin America only just got in on the positivity with a mere 0.3% upturn in demand.

“Cargo is a tough business, but we can be cautiously optimistic as we approach the end of 2018 – slow but steady growth continues despite trade tensions,” added Mr de Juniac.

“The growth of e-commerce is more than making up for sluggishness in more traditional markets, and yields are strengthening in the traditionally busy fourth quarter.

“We must be conscious of the economic headwinds, but the industry looks set to bring the year to a close on a positive note.”

Source: The Loadstar

milan Maersk

The future of box shipping: less vessel cascading and fewer liner alliances?

Vessel cascading has been an ever-present feature of container shipping since liner executives first understood the benefits of economies of scale and began the box ship capacity arms race.

But over the next few years, there are likely to be only a few arenas where it will take place, according to Drewry Maritime Advisors’ director of ports, Neil Davidson.

Mr Davidson also suggested that, with an outstanding orderbook of some 130 vessels of over 10,000 teu still to be delivered, the main areas that cascading could take place would be the North American Pacific coast.

There the maximum vessel size is expected to grow from 14,500 teu to 18,000 teu, and the west Mediterranean, where it is forecast to grow from 14,000-16,000 teu to the 18,000-22,000 teu range.

Other trades where smaller vessels continue to be deployed – for example, the Australian trades this year saw its first 8,600 teu vessel call – would continue to be constrained by port dimensions, he said.

However, he suggested that the most recent increases in vessel size – the largest ships growing from the 18,000 teu Maersk Triple-E, to the 23,5000 teu vessels currently under construction – could well be the last box ship size increases for a considerable period.

“Our analysis is based on the orderbook, and although there are some units of 23,500 teu under construction, in terms of length and beam, they are not dimensionally larger.

“In fact, the impact of ULCVs on the wider supply chain suggests that the maximum vessel size may have be to large,” he added.

He was referring the widespread belief that one of the causes of the recurrent port congestion over the past few years has been the introduction of ULCVs and the sheer number of containers they can unload in a single call. This has put huge pressure on hinterland supply chains.

Mr Davidson added: “There are also clear commercial reasons for not going bigger – service frequency has had to be reduced to fill those ships, and there has been an impact on market share, and carriers have needed to enter into alliances to maintain market share and fill those ships.” And he believes this this could have a deep impact on how shipping alliances are formed in the future.

“In the long-term, the most interesting thing is that, if we have reached the ceiling of maximum vessel size, and if container volumes in the market continue to grow, operators that currently need alliance partners to help fill their vessels may well find themselves able to fill them on their own and we may begin to see the break-up of alliances,” he said.

Source: The Loadstar

air pollution

Maersk aims to achieve zero CO2 emission by 2050

Container shipping company AP Moller – Maersk has unveiled plans to completely cut carbon dioxide (CO2) emission from its operations by 2050.

In order to meet the goal, Maersk intends to have carbon neutral vessels commercially viable by 2030, as well as accelerate new innovations and adopt new technology.

The company has called for a strong industry involvement to reduce emission from the shipping sector, which is estimated to carry around 80% of the world’s trade.

Maersk has so far decreased its relative CO2 emissions by 46% from the 2007 baseline, around 9% more than the industry average.

AP Moller – Maersk chief operating officer Søren Toft said: “The only possible way to achieve the so-much-needed decarbonisation in our industry is by fully transforming to new carbon-neutral fuels and supply chains.

“The next five to ten years are going to be crucial. We will invest significant resources for innovation and fleet technology to improve the technical and financial viability of decarbonised solutions.

“Over the last four years, we have invested around $1bn and engaged 50+ engineers each year in developing and deploying energy-efficient solutions. Going forward, we cannot do this alone.”

According to Maersk, the shipping industry’s solutions to reduce emission should be different from those of automotive, rail and aviation.

The electric truck, which is yet to make a debut, is expected to carry up to two twenty-foot equivalent units (TEU) and is estimated to cover 800km per charging.

A container vessel carrying thousands of TEU can cover around 8,800km during a voyage between Panama and Rotterdam in the Netherlands.

Maersk noted that, considering the 20-25-year lifespan of a vessel, the industry should come together and start developing a new type of vessel that will be used for sea journeys in 2050.

Next year, the company aims to start an open and collaborative dialogue with all potential parties to jointly tackle the issue of climate change.

Source: ship-technology.com

cmg

CMA CGM back in the black in Q3

CMA CGM moved back into the black in the third quarter, and recorded a net profit of $49m for the nine-month period.

However, in the third quarter, the French carrier was beaten to its ‘best in class’ financial performance ranking by Hapag-Lloyd which reported a stronger recovery.

CMA CGM’s turnover during Q3 increased by 6.3% on the same period last year, to $6.06bn, earned from a 5.5% rise in volume carried, at 5.26m teu.

The carrier said the 5.5% jump in liftings was mainly attributable to the strength of its transpacific, India, Oceania and Africa tradelanes.

Indeed, according to research by Alphaliner, on the transpacific eastbound trade from Asia to the US the Ocean Alliance carrier was the main beneficiary of the botched start-up of ONE, which resulted in the Japanese merged carriers’ combined volumes plummeting.

“After consolidating for the volumes of APL and ANL, CMA CGM has overtaken ONE to become the second-largest transpacific carrier,” noted Alphaliner.

However, CMA CGM saw its average rate per teu virtually flat, at plus 0.8%, while its unit costs jumped 7.7%, an increase of $55 per teu, compared with Q3 2017.

The disappointing increase in CMA CGM’s average rate is surprising, given the boost in its transpacific liftings and the 70-80% leap in freight rates on the route during the period, as shippers rushed to beat the hikes in US duty on Chinese imports brought in by the Trump administration.

This suggests the carrier had to discount rates on other tradelanes in order to protect market share. One UK-based forwarder told The Loadstar that CMA CGM was “now perhaps the most aggressive carrier” between Asia and North Europe.

On 7 September, The Loadstar reported: “CMA CGM has shocked the market by reducing Asia-North Europe FAK rates at a time when most carriers are trying to drive them up.”

The carrier’s FAK rates, valid from 24 September, lopped $200 off its 40ft rate, to $1,800.

CMA CGM said its increased costs – mainly due to the hike in the price of bunkers – “was only partially offset by the introduction of an emergency bunker surcharge”.

Operating income declined by 57.5% for an ebit of $241m and a margin of 4%, versus the 10.4% margin achieved in Q3 the previous year.

The net profit for the period was $103m, 68% lower than the year before, as CMA CGM admitted it had failed in its endeavours to pass on higher fuel costs to its customers.

By comparison, Hapag-Lloyd’s revenue during the same period, from liftings of 3.1m teu, came in at $3.5bn for an operating profit of $252m, an ebit margin of 7.1% and a net profit of $137m.

Source: The Loadstar

china usa

China-US trade war tariffs force manufacturing moves

The failure of the US and China to agree on trade at the weekend makes further tariffs on Chinese goods to the US seem increasingly likely.

But while most economists agree that trade wars are ineffective and harmful, some players in the logistics industry are seeing opportunities – mostly in air freight, which typically benefits from chaos and change.

The likelihood of 25% tariffs on a wide range of goods has seen the ocean freight industry surprisingly busy in the past couple of weeks, as exporters look to move goods to beat the 1 January deadline.

But ultimately, shippers and logistics service providers are looking to new manufacturing possibilities – and therefore supply chains – in South-east Asia.

Large numbers of US companies are talking of shifting manufacturer. Robert Rucker, CEO of The Tile Shop, said in an October earnings call: “With the Chinese tariffs, we are looking at moving. And right now: we’re at roughly 50% of our product coming out of Asia, my goal is to get that closer to 25% or even lower, and the potential for doing that right now is very good. We’re not waiting.”

James Simms, CFO of Vicor Corp, said in his earnings call: “The cost, going forward, may not be inconsequential, given the volume of components currently sourced from China. We are seeking non-Chinese alternate vendors.”

And Todd Bluedorn, CEO of Lennox International: “I’m not sure the Chinese tariffs are going to be short term. And so we’re taking action to sort of avoid the tariffs by moving to South-east Asia and other low-cost countries that can meet our requirements.”

It will take a while for companies to build new supply chains, and in the meantime carriers are already benefiting.

“It is the peak for China to the US, but it’s compounded by tariffs,” said Robert van de Weg, vice president sales and marketing for Volga-Dnepr Group. “There is a build up.

“A lot of this inventory was supposed to go by ship, but it’s going by air to be on time.

“If tariffs have a general effect on the economy and trade flows, there will be some change before it settles down into the new equilibrium.”

The question for carriers will be when to add capacity – and to where.

“South-east Asia could see new trade flows, Cambodia, Malaysia, Vietnam, Indonesia and Bangladesh,” said Mr van de Weg. “There will be more opportunities out of South-east Asia and a degree of chaos, as the supply chains won’t be ready. Plus, factories will have to move. However, I don’t believe the change will be sharp and sudden.”

AirbridgeCargo (ABC) is the V-D group’s Asia specialist and is currently looking at developing its South-east Asian network.

“We are looking at increasing the frequencies and maybe opening new markets. You don’t want to be too early, you don’t want to be too late. Don’t miss the boat, but don’t lose your shirt. You need to be prepared to go in. Increasing frequencies to existing points is the first step.”

ABC currently operates to Ho Chi Minh, Hanoi, Singapore and Taipei.

Mr van de Weg added: “Bangladesh is interesting. We have made progress on ACC3 certification there. We also think Indonesia and Thailand have potential. There is more and more infrastructure and more overland networks with Cambodia and Vietnam, and there is also a strong import market.”

Air freighter volumes appear to be rising in the region, with Thailand seeing international volumes this year above the market average growth, at more than 6%.

Cambodia’s Phnom Penh saw 24% growth, year on year, in cargo volumes in September. The Vietnamese civil aviation authority is forecasting 18% growth annually in freight volumes each year up to 2020.

Source: The Loadstar