Cargo Business Newswire ArchivesSummary for July 13 through July 17, 2015:
Monday, July 13, 2015
Drewry: Carriers will struggle to break even this year
A perfect storm of overcapacity, weak demand and high commercial pricing is threatening the profits of carriers for the rest of 2015, according to a recent Container Forecaster report from Drewry Maritime Research.
Earlier this year Drewry forecast that container shipping carriers would collectively generate profits of up to $8 billion in 2015, but they have now revised that to saying shipping lines will be lucky to break even this year. This means that some lines will be back in the red by the end of 2015.
Drewry says the only way to address this is for carriers to take much more dramatic action to handle the overcapacity that is now plaguing virtually all major trades. Although first quarter industry operating margins came in at 8 percent, cost savings from dropping oil prices were passed onto shippers by carriers in the form of much lower freight rates. And going forward, shipping lines will struggle to continue reducing unit costs in line with the expected erosion in freight rates, given stabilizing bunker costs.
Drewry estimates that this year average global freight rates will decline at their fastest pace since 2011, when the fall in industry unit revenue was as great as 10 percent. The outlook for freight rate development has not been helped by second quarter spot rates in the four main East-West head haul trades falling by 32 percent year-over-year.
Recent decisions by the Ocean Three lines to remove approximately 4 percent capacity on the Asia-North Europe trade should help the carriers’ July and August GRI initiatives to push rates up. But more action is required here since void sailings are only a very temporary solution. As many as 129 ships of 8,000 TEUs and above still need to find homes across a number of trades in the second half of 2015.
Each quarter brings another 10 to 15 ULCVs into the market and the ensuing cascade of tonnage into the trans-Pacific, Latin American and Asia-Middle East trades is having a genuine negative effect.
"There are not enough good homes for ships of over 8,000 TEU where they can be placed without doing some damage to the supply/demand balance," said Neil Dekker, Drewry’s director of container shipping research. "Ocean carriers do not want to idle these expensive assets. The order book is starting to get out of control, with another 1.14 million TEUs added since January."
"Carriers’ emphasis on ordering so many big ships is starting to backfire and virtually all major head haul trades are plagued by overcapacity. We are entering a new era which will be dominated by big ships and all ocean carriers need to be thinking of average head haul trade route fill factors of 80-85 percent as the norm, rather than 90 percent or more. They cannot keep adding capacity and expect there to be no substantial impact on unit revenues."
Port of Oakland to add 400 dockworkers
A backup of ships and cargo has led Port of Oakland terminal operators to begin hiring 400 new dockworkers, port officials announced Thursday.
Port operators will ramp up cargo operations and clear out a backlog of ships anchored in the bay. The first of the new recruits will begin work this week and more will be brought in through September, according to the port statement.
"We're not operating with the speed and efficiency our customers deserve right now," Maritime Director John Driscoll said . "Additional longshore labor is an important first step in getting back on track."
Some ships are anchored in the Bay for two days, waiting for short-staffed terminals to clear vessels from berths. Container cargo in Oakland has increased from the previous year’s total for three straight months, and the number of ships calling has grown, too, with the port often berthing 10 ships a day.
The port says the labor shortage has lengthened the time ships spend loading and unloading by as much as a day.
Port representatives said waterfront employers and the longshore union agreed last month to beef up Oakland's labor pool. In addition to adding new workers, they agreed to train and promote 100 current workers.
West Coast ports see fall in May container imports
The Wall Street Journal reports that West Coast ports’ share of container imports fell to 45 percent in May, down from 51.5 percent in May 2014, as effects lingered from chronic delays earlier this year, according to data released this week by the U.S. Census Bureau.
The fall in imports — measured by the dollar value of goods imported in containers — is partly due to decisions by many Asian shippers to reroute cargo to the Gulf and East Coasts following the protracted West Coast labor negotiations that resulted in delays in early 2015 at Pacific ports. The International Longshore and Warehouse Union reached contract terms with the Pacific Maritime Association in late February, but it took weeks to work through the backlog that had developed.
The kind of goods sent to the West Coast tend to have a relatively high market value and shippers want to get them to retail stores as quickly as they can, said Jock O’Connell, an economic analyst with Beacon Economics. The West Coast is the quickest route from Asia to U.S. customers. He said more goods are being sent through alternative ports when speed matters most, because they were perceived as more reliable during the West Coast slowdowns.
Meanwhile, the West Coast’s share of container exports saw another month of steady increases in May, despite the many challenges facing export producers this year. O’Connell said export share is "on an upward slope and getting back to normal" on the West Coast.
Canada’s Minister of Transport Lisa Raitt, along with John Weston, member of Parliament for West Vancouver, announced that Canada is providing $3.7 million to Clear Seas Centre for Responsible Marine Shipping to help establish and support its initial operations.
The activities of the Vancouver center will protect Canada's coasts, and enhance marine safety through the World-Class Tanker Safety System, which aims to strengthen ship-source spill prevention, preparedness and response, and liability and compensation.
The center’s mandate is to be the leading, independent source of evidence-based information on best practices for marine shipping, especially oil and gas, according to the government press release.
Specifically, the center will serve as an independent source for information on the safe handling and shipping of oil and gas products, including liquefied natural gas; identify and facilitate research related to the shipment of resource products; provide a forum for sharing best practices and dialogue with the public, Aboriginal groups and a broad range of stakeholders; and provide a structured framework for the ongoing research and monitoring of environmental and social impacts, related to the shipment of natural resource products, and to make recommendations on how spill risks can be assessed and communicated to the public.
Environmental groups seek to block Port of Seattle lease to Shell Oil
A coalition of environmental groups in the Pacific Northwest has filed a request for summary judgment in a Washington state superior court, seeking to block a Port of Seattle lease to a Royal Dutch Shell affiliate for the company's offshore drilling fleet, which would be used in Alaska.
A hearing date has been set on July 31 in Seattle.
Puget Soundkeeper Alliance and other groups asked for an order vacating the lease because the groups allege that it was granted in violation of the State Environmental Policy Act. The groups originally challenged the lease last March in a filing to the same court.
A.P. Moeller-Maersk wants to buy Greece’s two biggest ports now that Prime Minister Alexis Tsipras put them up for sale in his proposal of cost cutting measures submitted to creditors.
"We’re interested in the Greek ports of Piraeus and Thessaloniki and are pursuing them as part of our growth plans," Francois-Xavier Delenclos, a vice president at Maersk’s The Hague-based APM Terminals unit, said in an e-mailed reply to Bloomberg.
Earlier this year, the Greek government put the ports sale on standby. In last week’s proposal, the government said it will "announce binding bid dates for Piraeus and Thessaloniki ports of no later than end-October 2015."
APM Terminals, which operates in 58 countries, though not in Greece, has previously expressed interest in buying both.
"We remain interested in showing Greek leaders our expertise in the investment, planning, building, modernizing and operating of ports," Delenclos said. "We have a lot of experience in all markets and believe a competitive port system is integral to Greece’s future success."
A group of short haul truckers at the ports of Los Angeles and Long Beach voted last week to join the International Brotherhood of Teamsters, becoming the fourth company at the port to unionize.
In the $12 billion drayage trucking industry, short-haul drivers transport containers between ports and nearby rail yards and warehouses. For decades, most drayage drivers — who number more than 10,000 at the ports of Los Angeles and Long Beach — have been independent contractors who own their own trucks. But as ports have grown more congested amid a general trucker shortage, an opening emerged for companies that purchase trucks and hire full-time drivers.
The 88 drivers who unionized this week work for Eco Flow Transportation LLC, which launched earlier this year with funding from a private equity firm. The unanimous unionization vote, which was expected, brings the total number of drayage Teamsters in the Los Angeles and Long Beach region to roughly 450.
City Council to consider Port of Long Beach terminal expansion
The Long Beach City Council will hold a public hearing today on two appeals of a recently approved environmental impact report for a terminal expansion at the Port of Long Beach.
In May, the Harbor Commission certified Mitsubishi Cement’s environmental impact report on a terminal expansion that would allow the Nevada-based company to meet increasing supplies of imported cement amid rising demand.
Environmental groups Earthjustice and the Coalition for a Safe Environment filed the appeals to the EIR certification. Among several complaints, the groups say emissions levels considered in the EIR would be greater than what area residents should accept.
The Port of Long Beach says it followed California Environmental Quality Act rules when it used activity levels at the cement facility from the last full year of operations before the recession slowed construction projects throughout the country. The EIR includes all feasible mitigation measures for the project, and technology such as zero or near-zero emission trucks are supported since they are in the development phase, according to Port of Long Beach officials.
Mitsubishi Cement Corp. produces roughly 1.7 million tons of cement annually at its plant near Lucerne Valley in the San Bernardino County desert.
Los Angeles harbor commissioners and other port officials plan to travel to Chile and three Asian countries in hopes of shoring up relationships with customers after the chronic congestion and labor delays that occurred at the ports of Los Angeles and Long Beach in late 2014.
Later this month, Commissioner Vilma Martinez will visit Shanghai, Korea and Singapore to meet with executives of key shipping lines, including China Shipping, APL and NYK, according to Port of Los Angeles spokesman Phillip Sanfield.
Commissioner David Arian has a trip to Chile planned for August to meet with private fruit exporters and refrigerated shipping lines, according to Sanfield.
Officials hope to build confidence in the ports’ performance, attempting to avoid the diversion of their business to ports in Canada, Mexico and the East Coast.
Vietnamese crewmembers likely killed by toxic fumes
Three Vietnamese crew members of the cargo vessel MV Hi Ram were killed possibly due to toxic gas inhalation, while two others were rescued by the Malaysian Maritime Enforcement Agency (MMEA) in Pengerang waters on July 12.
The enforcement unit received a distress call from the vessel at 9.20am on July 12, according to Tanjung Sedili maritime enforcement chief Captain Amran Daud.
"A patrol boat was immediately dispatched to search for the vessel and after about an hour they found the vessel 4.1 nautical miles south-east of Tanjung Penyusup, Kota Tinggi," Amran said, reporting that two of the crewmembers of the Vietnamese vessel appeared sick.
"When interviewing the crew, we were informed the three deceased had worked in an isolated room in the vessel. They suddenly fell sick and died," he said.
FMC demands details from ocean carriers on collaborations
The Wall Street Journal reports that U.S. maritime regulators are making the world’s largest carriers provide documentation on how they are implementing service agreements on the U.S. West Coast, amid concerns over a collaboration the companies formed to address port congestion.
The U.S. Federal Maritime Commission issued the order to 19 global ocean carriers on Friday.
The shipping companies are parties to the Pacific Ports Operational Improvements Agreement, which went into effect without opposition from the FMC on April 17. The agreement authorized the ocean carriers and West Coast marine terminal operators to work together on "policies, actions and procedures" to improve efficiency at the ports, which have experienced severe congestion over the past year.
FMC commissioners expressed support for the agreement at the time, but they said it would be closely monitored to identify any anticompetitive activity.
Maersk Line plans to raise freight rates on routes from Asia to northern Europe by $450 per-TEU effective Aug. 1, the company told Reuters.
A container freight derivatives broker said most of the ten biggest shipping lines are aiming for higher rates from Aug. 1, although some have not issued statements.
Higher rates on the busiest freight routes between Asia and northern Europe would help companies, which have been struggling with overcapacity as a result of a weak global economy. Less than a handful of container shipping companies, Maersk included, posted profits last year.
Rate hikes announced so far include $550 per-TEU by third-biggest container shipping company, France's CMA CGM; $1,000 per-TEU by the sixth-largest, Germany's Hapag-Lloyd ; and $600 per-TEU by eighth-largest player, Korea's Hanjin Shipping.
China’s exports rose for the first time in four months in June, indicating that growth is stabilizing ahead of gross domestic product data out this week.
Overseas shipments rose 2.1 percent year-over-year, the Beijing customs administration said in Beijing, exceeding the median estimate in a Bloomberg survey for 1.2 percent growth. Imports dropped 6.7 percent, narrowing from the fall of 18.1 percent previously reported in May, leaving a trade surplus of $45.8 billion.
The increased exports provide a buffer for an economy suffering through a slump in investment growth. As monetary easing and fiscal stimulus stabilize demand, a stronger export sector may help prevent China’s slowdown from deepening after a month-long stocks route added to challenges.
"Exports are expected to maintain modest growth in coming months to help the economy," said Liu Xuezhi, an economist with Bank of Communications Co. in Shanghai. "Imports improved significantly in June because of lower import duties."
The Long Beach Harbor Commissioners have chosen Noelia Rodriguez, former chief communications officer for Metro Los Angeles, as the managing director of communications. She will oversee the Harbor Department’s communications, government relations and marketing divisions, according to a port statement.
Rodriguez brings diverse experience to the newly created role at the Port of Long Beach, ranging from the White House to the Los Angeles mayor’s office to her most recent position with Metro Los Angeles, the county’s public transportation authority.
As Metro’s chief communications officer, Rodriguez managed a $50 million budget overseeing media relations, government relations, marketing, communications and community relations. She was also responsible for customer programs and services.
She previously served as director of the John F. Kennedy Jr. Forum at Harvard University, vice president of corporate communications at Univision, director of communications and press secretary to First Lady Laura Bush from 2001 to 2003 and deputy mayor under former Los Angeles Mayor Richard Riordan.
Matson ship stalls in the middle of Pacific
Officials say the Matsonia, a Matson container ship that stalled at sea last week on its way from California to Oahu, has been repaired and has made its way to Oahu.
A representative from the company emailed customers notifying them that the vessel would not arrive on its scheduled arrival date, because it had experienced a mechanical problem.
It arrived on Friday, two days later than scheduled and perhaps with some ruined perishables.
The ship had stalled about 480 nautical miles from Honolulu with 21 people on board and loads of cargo including perishables. An emergency generator was running for the crew as they rushed to fix the issue.
The story about bulk and breakbulk cargo handling this year is more about the market’s stubborn downturn than the ability of ports to move the goods.
So before looking into what bulk ports and terminals are up to, a look at the condition of the market sheds some perspective: in short, conditions are not so good.
According to a Maritime Executive report this month from Athens by John Nikolaou, a financial analyst with Coca Cola HBC, "The shipping industry is experiencing its largest dry bulk market recession since the 1980s. The uncertain global economic outlook and the increased imbalance between supply and demand have led to historical low freight rates."
This situation could continue until 2017, he says. Nikolaou explained that lower tonnage in key trades so far this year have meant that average bulk carrier day rates have declined to around $6,500.
Drewry agrees that the dry bulk shipping market "is not expected to return to profitability until 2017, despite a modest recovery in earnings anticipated over the next two years," according to the latest edition of the Dry Bulk Forecaster. The dry bulk market has always been sensitive to demand fluctuations, Drewry reports, noting that "seven years ago a demand-driven peak in the market made many owners cash-rich, helping them survive the weak market that has persisted since."
"Anemic demand growth is here to stay, especially as the trade development in coal and iron ore into China is expected to decline further," commented Rahul Sharan, Drewry’s dry bulk shipping lead analyst.
Iron ore and coal form almost two-thirds of the global dry bulk market and China is traditionally the largest player. But recently China’s deteriorating air quality has moved the Chinese government to shift its focus from polluting, coal-fired power plants to renewables and cleaner sources of energy. "This is casting a shadow over the thermal coal market, which will have a detrimental effect on bulk shipping demand," Sharan said.
So far this year there have been a record number of dry bulk demolitions, and at a younger age. Thus, Sharan adds, "We do not expect any noticeable recovery in bulk shipping freight rates this year as the market remains severely over-tonnaged. While we expect some improvement in earnings through 2016, this is unlikely to be sufficient for freight rates to reach breakeven. However, we anticipate that the sector will return to profitability by 2017, provided current rates of demolitions persist and ship owners refrain from placing new orders."
The investment bank Goldman Sachs’ outlook is even gloomier. Overcapacity and low fuel prices will keep low dry bulk shipping freight rates for the rest of the decade or even longer, it says.
The bank predicted that the average utilization rate of the dry bulk shipping fleet will decline to 70 percent over the 2015 to 2019 period from the previously reported 90 per cent during the previous five years.
"Faced with the risk of leaving vessels idle over long periods, we believe that ship owners will continue to charge low charter rates. This compounds the impact of lower fuel prices, resulting in a period of cheap freight that should last until older vessels have been scrapped in sufficient numbers to balance the market. We expect low freight rates to persist at least until the end of the decade," the bank was quoted by Reuters as saying.
The bank said that the beneficiaries of low freight rates would benefit large iron ore and coal producers as they can access new markets, while high cost producers would suffer from greater competition and a declining share of their regional markets.
A mild recovery seemed to be occurring in late June/early July; however shipowners remain somewhat pessimistic about the short-term outlook.
"The industry will have to do the work needed to rebalance the market by adjusting the supply of tonnage, because there won't be any help to get from demand this time around," said Western Bulk CEO Jens Ismar in a ShippingWatch interview.
In the chemical tanker market, Stolt-Nielsen Limited’s Jens F. Grüner-Hegge, vice president corporate finance, says it won’t be until 2018 before "real improvement" in that market occurs.
Next: The view from bulk ports.
Gulfport dredging nixed by Corps of Army Engineers
Gulfport's 36-foot ship channel currently serves two tenants that carry containerized cargo — Dole Fresh Fruit and Crowley. The port wants to dig a deeper channel to serve bigger ships, but a deeper ship channel has been scrapped as part of a study on future expansion at the state port, the U.S. Army Corps of Engineers has confirmed.
Pat Robbins, a Corps spokesman in Mobile, said the channel deepening was removed from the study because port officials learned the state would have to pay the entire cost for the deeper channel, plus cover perpetual maintenance, because Congress did not authorize or fund the study.
The other essential transportation element for an expanded port — a north-south connector road between the port and Interstate 10 — has been stalled by litigation.
The process to secure federal funding for a deeper channel optimistically takes at least 10 years, and involves environmental and economic studies. Congress must authorize and fund each step.
The Corps' timeline called for a draft of its study to be completed in early 2014, but Robbins said removal of channel deepening has slowed the process. Robbins said aid the draft should be finished in the next couple of months.
UPS announces expansion of express freight service
UPS recently announced the second expansion this year of its UPS Worldwide Express Freight™ service, adding 8 new origin and 5 new destination countries.
The service is designed for urgent, time-sensitive and high-value international heavyweight shipments. The expansion adds five countries in Latin America and three in Europe to support customer needs.
"Eastern Europe is experiencing growth in the manufacturing and automotive industries and Latin America is undergoing rapid expansion of general industrial, healthcare, apparel, and high tech businesses," said Nick Basford, UPS vice president of international marketing. "We expanded the number of countries we serve due to consumer requests and anticipated future demand. UPS’s reputation for both reliability and speed, which is critical for urgent shipments, resonates with customers. We are working constantly to meet customer needs for global trade."
UPS now offers the guaranteed service to 58 origin and 56 destination countries and territories. Countries adding origin service include: Bulgaria, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Romania and Serbia. Countries adding destination service include: El Salvador, Guatemala, Honduras, Nicaragua and Panama.
The service offers faster guaranteed palletized shipments, over 150 lbs., in more lanes than any other carrier. Delivery is door-to-door and day-definite, with customs brokerage service included. Saturday deliveries are available to select U.S. and Canadian postal codes.
Volume up 26 percent at FECR intermodal facility at Port Everglades
Florida East Coast Railway marked the first-year anniversary of its Intermodal Container Transfer Facility (ICTF) at Port Everglades with a 26 percent increase in volume, according to James R. Hertwig, FECR president and CEO.
"This is a terrific milestone that validates the investment made by FECR, Port Everglades, the State of Florida and Broward County. One that will have long-lasting benefits for the community by reducing road congestion and greenhouse gas emissions," Hertwig said. "We look forward to continued growth at the ICTF as the port adds new docks and cranes, and expands its harbor with deeper and wider channels."
The ICTF, which was completed in 18 months and opened in July 2014, is used to transfer international intermodal containers arriving or departing by ship-both north/south and east/west trade lanes - as well as domestic containers and trailers with cargo moving to and from South Florida.
Prior to the opening of this facility, such containers were transported by truck to and from Port Everglades to off-port rail terminals in Fort Lauderdale and Hialeah.
"The ICTF ensures that Port Everglades is competitive with other U.S. East Coast gateways, and, most importantly, gives South Florida a cost and time-to-market advantage over many of these gateways," said Steve Cernak, Port Everglades Chief Executive and Port Director.
CP Railway challenge to Lac-Megantic settlement rejected
A Quebec judge rejected the Canadian Pacific Railway challenge to a settlement for victims of the 2013 Lac-Megantic crude-by-rail disaster this week, helping clear the way for compensation payments.
Those previously named in a class action lawsuit — including Irving Oil, General Electric, Shell Oil Company, ConocoPhillips, Marathon Oil and others — have agreed to contribute to a $338.28 million compensation fund for victims of the July 6, 2013 rail tragedy.
Forty-seven people were killed and the core of the town was destroyed following the derailment of a train carrying Bakken crude.
CP transported the tank cars of oil involved in the accident to Montreal before handing them over to the now insolvent Montreal, Maine & Atlantic railway, which was operating the train at the time of the crash. Unlike other companies targeted by a Lac-Megantic-related class action lawsuit, CP did not agree to the settlement and challenged the provincial court's jurisdiction in approving the deal.
CP has 21 days to appeal Monday's rulings, said Patrice Benoit, lawyer for the defunct Montreal, Maine & Atlantic.