Not Exactly Smooth Sailing Ahead for Container Shippers, Maersk and Hamburg Sud Executives Tell Cool Logistics Forum

The container shipping industry still faces a very tough economic and investment climate. That was the shared opinion of Peter Fredriksen, executive board member of Hamburg Sud, and Thomas Eskesen, head of global refrigerated business at Maersk Line, expressed in no uncertain terms during the recently held Cool Logistics Global Forum in Rotterdam, Holland.

Stressing the continued need to focus on profitability versus market share, Eskesen said that global reefer traffic volumes are likely to grow just 1% this year. As a result, Maersk Line will continue to defer any new investment in reefer equipment through 2014.

Fredrijsen, noting  that Hamburg Süd was likely to make a modest investment in new boxes next year after a two-year break, echoed the general sentiment of extreme carrier caution, given the current mix of sluggish volume growth and considerable new ultra-large tonnage coming on-stream in the near future.

Eskesen confirmed that Maersk had lost “double digit” reefer cargo volumes since announcing its $1500 general rate increase at Cool Logistics Global 2012, adding: “We expected that.” While the GRI was not uniformly implemented, the Maersk executive added that the move had prompted a “breakthrough” in favor of longer-term 3-5 year service contracts as a means to break the cycle of rate volatility and allow for better capacity planning.

“In some southern hemisphere markets up to 60% of the business is now being done under long-term contracts, and that means that we can send boxes down to the shippers and make sure that the equipment is there for them,” he said.

A vigorous debate on the future role of specialized reefer versus reefer container logistics was sparked by the launch announcement of a new ro-lo reefer ship design by industry veteran Birger Lindberg Skov, managing director of Reefer Intel, and Per Westling, managing director of Stena RoRo, one of the world’s largest ro-ro vessel operators. Based on the cassette cargo handling technology pioneered and proven in the Scandinavian paper export market, the new design offers considerably higher loading capacity for fresh produce than current conventional reefer ships.

Skov said that the new ship had been optimized for large banana shippers looking to remain in control of their end-to-end supply chains, with particular attention paid to improving handling efficiency in port. Stena’s Per Westling added that port turnaround times would be reduced by around 50%, allowing extra port calls to be added to service rotations and holding out the possibility of slow steaming, enabling bunker costs to be reduced without compromising schedule times.

Moving to the landside, perishable shippers including frozen potato products manufacturer Aviko, Fairtrade banana pioneer Agro-Fair, Citrus Growers Association of Southern Africa and FloraHolland outlined a range of shipper and retailer-driven initiatives to promote modal shift and reduce carbon footprint.

Other major conference themes included the rise of emerging markets, covering new ‘south-south’ cross trades, China as a major global demand center  and perishable logistics for Brazil as a major source of supply.

By 2020, nearly 60% of China’s projected 1.43 billion population will live in cities, delegates heard from Alfred Cheung of Green Society Association. This widescale urbanization, combined with dwindling rural land, will drive increased imports of beef, pork and poultry, said Cheung. The commercialization of China’s food supply will spur the rise of much larger trading, retail and foodservice conglomerates, including large cross-border M&A deals such as the recent $4.7 billion acquisition of Smithfields by Shuanghui.

All of this has significant impact on cold chain infrastructure and logistics services, where major investment, knowledge transfer and skills development is needed across the country, especially inland. Improving food safety and reducing food waste are among the key challenges – current annual losses of fruits and vegetables in China exceed €12 billion, with 20-30% of produce unsold and/or uneaten, said Willem Kokkeel of Eurasia Connection. Although China presents a challenging business environment for foreign companies, the opportunities are immense and the very rapid pace of change expected over the next few years makes now the time to get involved, advised Cheung..

As a major exporting nation, Brazil poses equal logistical deficiencies and opportunities, said Marlene Arisa, reefer manager for DHL Global Forwarding. Over 86% of the country’s roads are unpaved, the rail network is limited, coastal shipping is restricted due to cabotage laws, ports are subject to congestion and delays, customs procedures are cumbersome and land transport from production centres to port can take up to 20 hours. Recently-passed national port reform laws, plus current investment in new facilities at Santos, the country’s largest port, are welcome developments, said Arisa. However, much work remains to bring Brazil’s perishable logistics infrastructure and processes up to world-class standards.

The logistical challenges – especially in customs clearance – also apply to perishable imports, both for Brazil and East Coast South America (ECSA) in general. Andrew Lorimer of trade analysts Datamar said that while ECSA reefer container trade remains highly imbalanced, imports have grown much more quickly than exports over the past seven years, jumping from 5% to 15% of overall volumes. Total ECSA reefer trade is currently around 900,000 TEU annually.

Lorimer added that ECSA export and import cargoes are increasingly being transhipped rather than going direct, and questioned the consequences of this in terms of claims, loss and delays. “We really need more data to see what it actually going on here,” he observed.