Cargo Business Newswire ArchivesSummary for November 9 through November 13, 2015:
Monday, November 9, 2015
Maersk to slash costs, cancel vessel orders and cut staff
Maersk Line, the world's largest container shipping company, said Wednesday it will slash costs, cut staff by almost a fifth and pull out of vessel orders as trade along the Asia to Europe trades weaken.
The plans come two weeks after A.P. Moller-Maersk cut its 2015 profit forecast by 15 percent, blaming a slowdown in the container shipping market.
Maersk will report its third quarter earnings on Friday.
"A number of markets have disappointed with a lot weaker demand than expected this year," Maersk Line Chief Executive Soren Skou told reporters on a conference call. "And it's first of all Asia to Europe, which has had negative growth. Europeans have been importing less this year from Asia than last year and that was frankly a surprise."
Raw material trade routes, such as West Africa and the east coast of Latin America, had also slowed, Skou said, because "what went up with China, went down with China."
China's factory activity fell for an eighth straight month in October, a private survey showed on Monday, pointing to continued sluggishness in the world's second-largest economy.
Weekly freight spot rates on Asia to Europe routes have been languishing below $1,000 per-TEU, according to the Shanghai Containerized Freight Index, spending all but five weeks of the year at or below levels deemed profitable.
Two days after Maersk Line said it would slash costs, cut staff by almost a fifth and pull out of some vessel orders, parent company A.P. Moeller-Maersk has halved its Q3 profit expectations on weakened container shipping demand.
The group maintained its reduced forecast made two weeks ago for an underlying profit of $3.4 billion for 2015, down from the $4 billion previously expected.
Maersk has taken a double hit to its businesses – in addition to dealing with overcapacity and low rates in its container business, its oil units have floundered as crude prices halved since last year.
The earnings report showed third-quarter net profit down almost 50 percent to $778 million from $1.5 billion a year ago. On Friday, the company said it now expected demand for seaborne container transportation around the world to grow 1-3 percent this year, rather than its previous view of 2-4 percent.
House passes transportation funding bill that includes Ex-Im Bank
The House of Representatives voted this week to pass a multi-year transportation funding bill that also would resurrect the idled Export-Import Bank, although final provisions are subject to negotiations with the Senate.
The 363-64 vote was new House Speaker Paul Ryan’s first legislative victory. The measure authorizes federal spending on road, bridge and rail transit infrastructure projects for six years and provides guaranteed funding for three years, about $339 billion.
Its passage takes Ex-Im, idled since the trade bank's charter expired on June 30, a big step closer to being back in business offering loans and guarantees to support U.S. exports. Conservative Republican critics of the trade finance agency have argued that Ex-Im should be closed permanently because it provides unnecessary "corporate welfare" to elite multinationals including Boeing and General Electric.
The House bill renews Ex-Im's charter through Sept. 30, 2019, with some reforms. That language is identical to the text of a Senate-passed transportation bill, making Ex-Im nearly impossible to exclude from negotiations to work out differences between the two versions.
The biggest issue to be worked out with the Senate is how to pay for a funding shortfall from federal fuel taxes, which have been unchanged since 1993.
China has fired the president of Tianjin Port Group and intends to prosecute him for dereliction of duty, almost three months following the huge chemical explosions at the northern port killing more than 160 people, state media said.
Anger over safety standards is growing in China, after 30 years of swift economic growth marred by incidents from mining disasters to factory fires, and President Xi Jinping has vowed that authorities will learn the lessons paid for with blood.
Zheng Qingyue, who was chairman of the group's listed unit, Tianjin Port Holdings, will also be removed from his position at the city's international trade and shipping service centers, the Tianjin government said on its website.
It was not possible to reach Zheng for comment.
The People's Daily newspaper, the mouthpiece of the ruling Communist Party, said Zheng, his assistant Li Hongfeng, and the deputy chief of the firm's safety bureau, Zheng Shuguo, would face criminal prosecution for dereliction of duty.
The container ship El Faro partially broke up when it sank off the Bahamas in a hurricane last month, and its bridge and voyage data recorder are missing, according to U.S. authorities.
The data recorder, similar to an airplane's black box, was affixed to the bridge and could provide investigators from the U.S. National Transportation Safety Board with important clues regarding what caused the worst cargo shipping disaster involving a U.S.-flagged vessel in more than 30 years.
It should contain the last 12 hours of engine orders aboard El Faro and other communications from the bridge.
The 790-foot ship disappeared with 33 mostly American crew on Oct. 1, during a regular weekly run between Florida and Puerto Rico, after the captain reported losing propulsion and taking on water.
NOL in early acquisition talks with Maersk and CMA CGM
Neptune Orient Lines is in preliminary talks with CMA CGM SA and A.P. Moeller-Maersk on a potential acquisition of the Singapore-based container liner, according to an NOL announcement.
Controlled by Singapore's state investor Temasek Holdings, NOL has been struggling through the prolonged downturn in the shipping market, and has posted four consecutive years of losses.
NOL sold off its logistics business for $1.2 billion to Japanese freight carrier Kintetsu World Express earlier this year, and has been said to be looking to sell the rest of the company ever since.
"NOL has a duty to assess all options to maximize shareholder value and improve its competitiveness," the company said in a statement. "From time to time, NOL enters into discussions on possible combinations involving NOL, while remaining focused on returning its core liner business to sustainable growth and profitability."
Share prices in NOL, which has a market capitalization of $1.9 billion, have risen 24 percent so far this year. Its 12-month forward price-to-book value ratio stood at 0.81, compared with 0.99 of its peers, indicating the stock is undervalued, according to Thomson Reuters data.
XPO Logistics, which serves as a broker between shippers and freight companies, said its revenue more than tripled, driven by acquisitions.
The company also said it was targeting about $1.7 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in 2018, up from its previous target of $1.5 billion in 2019.
XPO said revenue from its transportation business, which includes truck brokerage, truckload and less-than-truckload, jumped 128 percent to $1.40 billion in the third quarter ended Sept. 30.
An array of acquisitions, including a $3.53 billion purchase of France-based Norbert Dentressangle, was the main driver of a rise in transportation revenue, the company said.
XPO, whose customers include Macy's, ConAgra Foods and Dean Foods, also acquired trucking and logistics company Con-way for $3 billion last month.
XPO has grown to about $3 billion in market capitalization from $173 million in 2011, as it seeks to be a one-stop shop in U.S. transportation logistics business, largely through acquisitions.
Revenue jumped to $2.36 billion from $662.5 million in the third quarter.
Canada’s Brookfield buys 15 percent stake in Australian ports operator
Canada's Brookfield Asset Management has purchased almost 15 percent of Australian ports and rail operator Asciano as part of an agreed $6.5 billion takeover that has drawn the scrutiny of antitrust regulators, The Australian Financial Review reported.
The report comes just days after Asciano's domestic rival Qube Holdings and partners said they had bought a one-fifth stake in the target, and wanted to buy assets that may be up for grabs as the deal unfolds.
The AFR reported Brookfield Infrastructure Partners, a subsidiary of Brookfield Asset Management, has acquired 146 million shares, or a 14.99 per cent stake, in Asciano at A$8.80 apiece. Asciano shares closed on Thursday at A$8.28.
Brookfield intends to buy at least 50.1 per cent of Asciano, the AFR reported.
General Electric has been awarded a $2.6 billion contract to supply India's railways with 1000 diesel locomotives, as the state-owned network seeks foreign capital to help it modernize.
GE will also invest $200 million to build local manufacturing and service facilities, the company said in a statement.
Under the deal, GE will build a manufacturing facility in the eastern state of Bihar, as well two maintenance sheds elsewhere in the country, to service the locomotives over an 11-year period.
GE beat competition from rival manufacturers like Canada's Bombardier and Germany's Siemens for the deal. India is also set to announce the winner of another multi-billion dollar contract to supply electric locomotives.
Prime Minister Narendra Modi's government has said it will invest $137 billion on its railways by 2020.
India's railways is a necessity for the more than 23 million people who use it every day, and offers some of the world's cheapest fares to help its poor travel across the country.
But the system largely dates back to the British colonial era and India has struggled to generate money to invest and modernize its infrastructure, leaving an aging and congested network where trains run at an average speed of just 50 kilometers per hour.
El Faro sinking delays LNG conversion of 2 Tote ships
The sinking of the El Faro Oct. 1 on a voyage from Florida to Puerto Rico will delay the conversion of two Tacoma-based ships to natural gas propulsion.
The El Faro had been scheduled to move from Florida to Tacoma at Thanksgiving to replace one of two Tote Maritime Alaska ships that sails between Tacoma and Anchorage. That ship, the Midnight Sun, had been scheduled to head to Singapore for a four-month conversion of its propulsion system from oil to cleaner liquefied natural gas.
John Parrott, Tote Maritime president, said that without a ship to replace the Midnight Sun, Tote is delaying the conversion a year.
On the Puerto Rico run, El Faro has already been replaced by a new ship, the Isla Bella, the first of two new natural gas powered ships built for Tote in San Diego.
Hyundai stock falls on rumors of merger with Hanjin
Hyundai Merchant Marine stock fell the most in more than two years in Seoul trading after a report of a possible merger with Hanjin Shipping Co. triggered worries the move will increase uncertainty about their future.
Shares of Hyundai Merchant, South Korea’s second-largest shipping company, fell 14 percent to close at 5,130 won. Hanjin Shipping Co., the country’s biggest shipping company, fell 4.8 percent to 4,700 won.
South Korea’s government will discuss a possible merger of Hanjin Shipping and Hyundai Merchant at a vice ministerial meeting on corporate restructuring, the JoongAng Ilbo newspaper reported, citing the government. The nation’s Financial Services Commission denied the report and said the government hasn’t sought a merger.
Shipping lines worldwide have been selling assets, cutting workers and are considering consolidations to stem losses as years of slowing global trade and overcapacity eat into rates.
Bill would trigger federal intervention during port slowdowns
The federal government would be likely to intervene in future widespread port slowdowns under a bill introduced by Oregon Democratic Rep. Kurt Schrader and a group of Republicans from the West Coast and Midwest.
As it stands now, a U.S. president has the power to ask for a court order that can force striking unions to keep working. Many state and federal legislators called for President Obama to use that power during a nine-month period, starting in summer 2014, when unionized dock workers were at odds with West Coast port operators during contract negotiations. Work at container terminals up and down the coast slowed to a halt at times, with ships waiting weeks or months to unload cargo.
The bill announced last week by Schrader, who was among the more vocal Northwest politicians denouncing the slowdown, and Washington Republican Rep. Dan Newhouse would strengthen that law.
Instead of leaving it to the discretion of the president to decide whether to convene a "board of inquiry" to recommend whether the White House should intervene, the bill would compel the president to step in if certain economic thresholds were met. It also would expand the definition of a strike to include slowdowns, lockouts and threatened strikes or lockouts.
The three trigger points would be:
- The bill says the board of inquiry must intervene if the labor dispute occurs at four or more port facilities.
- The federal board would be convened if 6,000 employees at ports were affected.
- The third trigger point in the bill is if U.S. imports and exports drop by 20 percent in one month.
The Port of Portland has been embroiled in a dispute between the local International Longshore and Warehouse Union and container terminal operator ICTSI Oregon for years, which has caused slowdowns and conflict ultimately resulted in Portland losing most of its container business, with biggest customers Hanjin and Hapag-Lloyd leaving the port.
"The West Coast Port crisis cost Oregon jobs, millions of dollars in economic growth and productivity and, eventually, the loss of its largest container shipper Hanjin from the Port of Portland — a hit that we will not know the full magnitude of for a few years," said Schrader at a Thursday press conference in Washington D.C. "Another dispute of this magnitude cannot and should not happen."
Triton Container merges with TAL International Group
Triton Container International and TAL International Group announced that they would merge to create the world’s largest lessor of intermodal freight containers with a combined container fleet of nearly five million TEUs and revenue earning assets of $8.7 billion.
Triton was founded in 1980 and is currently owned by Warburg Pincus and Vestar Capital Partners, along with other private investors, including members of Triton management. Located in Bermuda, Triton operates a container fleet of 2.4 million TEUs, services its customers through 19 subsidiary offices in 13 countries.
TAL International, located in Delaware, operates a container fleet of 2.4 million TEUs, and services its customers through 17 offices in 11 countries.
The companies say the merger will create the world’s largest intermodal container leasing company with a container fleet of 4.8 million TEUs, resulting in enhanced container supply capability.
The combined company expects to realize $40 million per year in annual SG&A synergies, by aligning infrastructure and creating a best-in-class systems environment.
Smoldering wood cargo triggers emergency response at Tyne port
A fire alert on a cargo ship carrying thousands of tons of wood pellets sparked a massive emergency response at the Port of Tyne.
Dozens of firefighters and a fireboat were called out to Tyne Dock West last week after part of the ship’s 11,000-ton load housed in the ship hold became overheated.
A fire alert on a cargo ship carrying thousands of tons of wood pellets sparked a massive land and sea emergency response at the Port of Tyne.
Crews unloaded 100 tons of smoldering pellets and left them cooling on the dockside.
Port operations remained unaffected while the fire service attended the incident.
Capitol Watch: Freight is the star of the House STRRA
By Anna Denecke, Associate, Blakey & Agnew, LLC
Despite a tumultuous series of weeks in Congress, in which Speaker John Boehner (R-OH) retired and his heir-apparent Kevin McCarthy (R-CA) bowed out of the race to succeed him, the House still approved their first long-term surface transportation proposal in a decade.
On November 5, by a vote of 363-64, the House’s six-year Surface Transportation Reauthorization and Reform Act of 2015 (STRRA) was approved and sent to conference with the Senate’s Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act. The DRIVE Act passed the Senate by a vote of 65-34 on July 30.
The House bill provides $325 billion in contract authority, compared to the Senate’s slightly more robust $350 billion proposal. Both bills address the chronic insolvency of the Highway Trust Fund by transferring dollars from the General Fund of the Treasury to the beleaguered transportation account.
The hallmark of the House-passed STRRA is its creation of the Nationally Significant Freight and Highway Projects program. This competitive grant program provides $4.42 billion in contract authority, over six years, to freight projects around the country.
STRRA’s Nationally Significant Freight and Highway Projects program has broad applicant eligibility and funnels a large percentage of its money to highway, bridge, and grade separation projects. It includes a $500 million aggregate flex cap for projects on the bill’s newly created multimodal freight network.
The program is, in some respects, comparable to the Assistance for Major Projects Program (AMPP), the DRIVE Act’s merit-based grant program funded through contract authority at $2.1 billion over six years. AMPP provides up to 20 percent of funds annually for transit and multimodal freight projects. The Senate program augments two other sources of freight funding created by DRIVE. The first is a freight formula program, supported by contract authority at $11.65 billion over six years. The second is the Assistance for Freight Projects program, authorized for appropriations at $200 million annually.
In addition to providing much-needed funding for freight infrastructure projects, STRRA establishes a National Multimodal Freight Policy and asks the Secretary of Transportation to designate a National Multimodal Freight Network. Similar policy provisions are included in the DRIVE Act. STRRA also reforms MAP-21’s 28,000 centerline-mile Primary Freight Network, renaming it the Primary Highway Freight Network and increasing the mileage cap to 41,000 miles.
An amendment offered by Rep. Neugebauer (R-TX), and subsequently adopted by the full House during floor debate of STRRA, substantially increases the amount of money available to fund a final surface transportation bill. Neugebauer’s amendment provides a net addition of $40 billion in transfers from the General Fund of the Treasury to the Highway Trust Fund, offset by taking dollars from a surplus account at the Federal Reserve.
This infusion of General Fund cash provides previously unanticipated flexibility to the STRRA/DRIVE Conference Committee. Conferees could choose to pay for all six years of STRRA or five years of the more robust DRIVE Act. They could also choose to eliminate other budgetary offsets in favor of the Neugebauer transfer, which would, in effect, only pay for a portion of the bill up-front and leave the question of how to maintain the solvency of the Highway Trust Fund up to a future Congress.
Blakey & Agnew, LLC is a public affairs and communications consulting firm based in Washington, DC.
NRF: Imports at major U.S. retail ports to rise 8.3 percent in November
Import cargo volume at the major U.S. container ports will rise 8.3 percent this month year-over-year as consumers commence holiday shopping, according to the monthly Global Port Tracker report released by the National Retail Federation and Hackett Associates.
"Conditions aren’t perfect but the ports are running reasonably well," said Jonathan Gold, NRF vice president for supply chain and Customs policy. "That’s a dramatic difference from this time last year, when the West Coast ports were experiencing slowdowns and congestion from labor negotiations. This year, most merchandise has already arrived and replenishment should not be a problem."
The cargo report comes as NRF is forecasting a 3.7 percent increase in holiday sales this year over 2014.
Ports covered by Global Port Tracker handled 1.62 million TEUs in September, up 2.2 percent from a year ago.
October was estimated at 1.63 million TEUs, up 4.5 percent from 2014. November is forecast at 1.51 million TEUs, up 8.3 percent, and December up 0.4 percent at 1.44 million TEUs. If these predictions were proven correct, that would bring 2015 to a total of 18.35 million TEUs, up 6.1 percent from last year. The first half of 2015 totaled 8.9 million TEUs, up 6.5 percent over the same period last year.
Port Tracker predicts that January 2016 cargo volume will rise 18.5 percent year-over-year to come in at 1.46 million TEUs. Last year’s numbers reflected the slowdowns experienced just before West Coast dockworkers agreed in February 2015 on a new contract. February 2016 is forecast up 17.9 percent at 1.41 million TEU. March is forecast at 1.35 million TEUs, down 21.9 percent from a year ago because of large volumes seen after the contract agreement.
"Inflation remains non-existent, which worries the Federal Reserve, but with unemployment at 5 percent we expect to see rising take-home pay that will translate into higher sales," Hackett Associates Founder Ben Hackett said. "In sum, the U.S. economy is doing well."
Global Port Tracker covers the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle/Tacoma, New York/New Jersey, Hampton Roads, Charleston, Savannah, Port Everglades, Miami and Houston.
High Panama Canal traffic attributed to West Coast diversion
The Panama Canal says it continues to experience unusually high demand and is taking several steps to expedite traffic, decrease Canal Waters Time and reduce the current backlog of vessels.
The canal has postponed non-critical maintenance work at the locks, modified its booking system, canceled draft restrictions, and assigned additional crews to operate the tugs, locomotives and locks.
The greater demand is attributed, in part, to traffic diverted from the U.S. West Coast and a higher-than-normal volume of ships that require additional security measures, such as tankers and gas carriers. The canal says it has also seen a higher percentage of large and deep-draft vessels, which also affects CWT.
Weather has also slowed traffic. In the month of October alone, fog delayed 107 vessels. Drought caused by the El Niño phenomenon reduced water levels in Gatun Lake, increasing lockage process time.
"We have taken, and will continue to implement, measures to speed traffic and reduce wait times," said Panama Canal Administrator/CEO Jorge L. Quijano. "Of note, this past year, the Canal saw record cargo tonnage and greatly advanced the Canal expansion, which is 94 percent complete and will double our cargo capacity."
To further expedite the traffic, the Panama Canal will temporarily suspend booking slots for regulars available in the third period, for vessels less than 300 feet in length and for Just-In-Time slots for regulars. These measures will take effect November 12, 2015.
The Panama Canal said it would continue to monitor the situation.
Hapag-Lloyd says profits up on CSAV merger
Hapag-Lloyd announced it expects to post a profit in 2015 for the first time in five years and a year earlier than planned, as a merger with Chilean competitor Cia Sud Americana de Vapores helps the German shipping line to lower costs.
Transport expenses per-TEU fell 18 percent in the first nine months, the Hamburg-based company said Wednesday in its first interim report since going public on Nov. 6. The shares rose as much as 3 percent and traded up 0.8 percent at 20.19 euros as of 10:35 a.m. in Frankfurt.
The improved forecast by the world’s No. 5 carrier comes even as demand for transporting manufactured goods remains modest and emerging economies cool. As larger vessels enter service in Asia-related trades, it may be "difficult to implement freight-rate increases in the fourth quarter," the company said.
"Hapag-Lloyd is profitable but freight rates exceed transport costs only by a small margin, showing the pressure the industry is under to cut costs," said Thomas Wybierek, a shipping analyst at NordLB, to Bloomberg.