Wednesday, April 29, 2015

Shippers Fret as Container Shipping Alliances Launch Ever Larger Vessels

Review of Services Whilst Insurers Consider Ramifications
Shipping News Feature

WORLDWIDE – With sixteen of the world's biggest shipping company’s tied up in the four mega-alliances, the European Shippers’ Council (ESC) has announced that it is launching a global review of the container liner shipping market as a result of the growing concerns among manufacturers, retailers, and wholesalers of the long term threats of a concentrated box freight industry through these agreements. Representing this range of logistics interests, the ESC has remained cautious of the raft of new alliances and cooperation agreements and, together with the recent race to construct ever larger ships, the Council is worried that there will be fewer options for transporting products overseas.

The ESC proposes to monitor the three main trading lanes that are important to manufacturers, retailers and wholesalers that ship their goods overseas studying the primary performance indicators that matter to these companies, such as spot rates, transit times, ports directly called and blank sailings among others. The worldwide survey will be carried out in the coming years, ideally by the newly formed Global Shippers’ Alliance, a cooperation between the Asian Shippers’ Association (ASA) and the American Association of Exporters and Importers (AAEI) and the ESC.

In order to prepare for a more concentrated container liner market, ESC Chairman Denis Choumert stressed the need for shippers to collaborate on a worldwide scale and to promote cooperation between the main regulatory agencies. Speaking at the recent Global Liner Shipping Conference in Hamburg, Choumert said:

“Although the current imbalance between capacity and demand gives the impression that alliances do not have a negative impact on the market, this might change rapidly when rates and surcharges increase as weaker players will be outcompeted in the race for ever bigger ships.”

Speaking at a different conference and tying in nicely with the ESC’s announcement, the TT Club’s Phillip Emmanuel has put into perspective some of the ‘sensationalism’ surrounding the recent growth trend in container ships. Addressing industry professionals at the TOC Asia Conference in Singapore, Emmanuel advised ports and terminals to take a measured approach to the risk management of their operations, looking carefully at the ramifications to their own facilities of potential larger ship calls, warning ‘beware the big ship hype’.

Obviously insurance being the Club’s central interest, in outlining the Club’s position, Emmanuel explained that the potential for damaging incidents to occur is generally more a factor of an individual operation’s adoption of best-practice, sound maintenance and the application of efficient safety measures than size of ships or volumes of cargo.

In addition, it is clear that the largest of the container ship newbuilds, now capable of carrying nearly 20,000 TEUs, can’t and won’t call at the majority of the world’s terminals. Their introduction onto the Asia-Europe trade will, however, displace smaller units, which in turn will be utilised on trades, and call at ports, where previously they have not been seen. Emmanuel, commented:

“Terminal operators should take precautions that are relevant to the specifics of their own operation. Bigger ships and greater container volumes will only augment the exposures that are already inherent in their current operations.”

Examples, as highlighted in the speech, include the requirement in any location for upgraded – and expensive – technology represented by new cranes and more yard equipment that might be necessary to handle larger ships. The type of risk and the more common causes of insurance claims, however, remain the same, according to an analysis of the TT Club’s claims records which shows:

“The direct interaction at the berth between ship and terminal facility accounts for 31% of the total cost of claims for ports and terminals over the last five years. Indeed, the most valuable asset of any terminal, the quay crane, unsurprisingly represents the biggest single element (some 25%).”

These statistics serve as a reminder to ports and terminals to consider, not only berth length and depth, but also issues such as berthing and the capability of tugs, mooring lines and bollards. The analysis for ports and terminals highlights the impact and regularity of ship collisions with the crane booms, crane brake or structural failure, and hoist and spreader malfunctions, in addition to crane collapse due to windstorms. Emmanuel concluded:

“These risks can all be minimised by efficient maintenance programmes, proper use of safety technology and adequate windstorm protection whatever the size of ship being worked.”

The container carriers which have aligned under the new agreements will point out that all relevant regulatory authorities have examined, and passed, the new alliances. As we have seen previously however with container conferences and the like, what is acceptable today is often the non-competitive crime of tomorrow, and the regulators have stated, almost to a man, that they will be watching the new deals closely.

As the ever larger ships are utilised on the main trade routes, any port incapable of handling them is liable to be bypassed which has resulted in programmes of dredging and port refitting at most of the key venues. How this new scenario will play out will only really become clear in the future.

Photo: MSC Oscar