Bigger ships, congested ports, the need for greater collaboration and smarter planning – there’s a lot to keep importers, exporters and shipping firms on their toes in 2015.
It would appear that, right around the world, ‘the times they are a-changing’ in regard to shipping.
Cargo owners have received deteriorating levels of reliability in calls from ships over the past year, says NZ Shippers Council executive officer Peter Morris.
Vessel schedule reliability has been down, not so much around the New Zealand coast, but to North Europe, down from about 78 percent to 61 percent, and eastbound across the Pacific from about 80 percent to 61 percent.
Maersk Line is still the most reliable line in the world, according to maritime analyst SeaIntel, but the industry as a whole took a hit in the December 2014 quarter especially, due to the West Coast strikes in the United States. They led to congestion and the inability to unload containers, impacting the rest of the networks, SeaIntel says.
But severe congestion issues throughout major hub ports in North Europe, the US and Asia – particularly Tanjung Pelepas (Malaysia), Hong Kong and Shanghai – are cited as the main reason for the decline in reliability.
“That’s significant,” Morris says. “There’s a view that cargo owners should allow three more weeks in the supply chain. Importers need three weeks more safety stock in the warehouse.
“And the main cause is vessel congestion at ports due to big ships being shoehorned into terminals not built for them.
“That, in turn, is because ports worldwide have not invested to keep pace with ever growing ship sizes.
“Financially, New Zealand ports have had a good year across the board. None are actually dredging for big ships yet but a number are making moves,” adds Morris.
Lines are using bigger ships because of the scale benefits, he says.
The average size of international vessels calling at New Zealand ports only three years ago was 2500–3000 TEU. Now 4200–4600 TEU are more common, and regular arrivals last year were 5000–5500 TEU – in the top end of what our ports can accommodate, says Morris.
“We are dicing with danger by having our ports at capacity. Big ships are in port longer waiting for space on the terminal. Boxes are getting lost.
“And there’s already congestion in Shanghai where the 10-year-old port is one of the largest container ports in the world.
“We’re starting to see it in New Zealand too: vessels arriving out of schedule and having to anchor offshore, due to problems overseas.
“And have you got road and rail capacity as well? It’s a system. In New Zealand some key roads are congested too,” says Morris.
Road Transport Forum NZ chief executive Ken Shirley says road freight will be able to quickly adapt to the requirements of bigger ships, especially as there will be a significant lead time.
He says a recent report to the Ministry of Transport suggests generally there is sufficient capacity on New Zealand’s rail and road networks, with the exception of key road and rail routes to ports of Auckland and Tauranga, and road access to Port Otago. And road upgrades will be required on the Auckland to Hamilton route under some scenarios.
“Providing the required investment is made in a timely manner, the road freight industry will adapt,” says Shirley.
US West Coast dockworker strikes over the nine months to March 2015 were not the only cause of worldwide port congestion, says Peter Morris, of the NZ Shippers Council.
“Labour was one element of a near perfect storm.”
Burnard International freight forwarders’ business development manager Geoff Popham says exporters and importers were expected to be feeling the effects up until May/June – until the backlog of vessels in anchorage and cargo in the US terminals were cleared.
The New Zealand Export Credit Office (NZECO) head of business origination, Peter Rowe, says there had been no influx of customers claiming non payment insurance due to the US port problems, but that could be due to them having payment terms linked to when they shipped, that covered their backs.
But a lot don’t have such terms.
If, for example, an exporter sells on Bill of Lading and the Bill is signed in New Zealand, the exporter won’t get paid (by the buyer) and trade credit insurance can kick in. If the Bill of Lading has not been signed there is effectively no obligation to pay, so the exporter is at risk of non-payment. It comes down to when the buyer is responsible for paying: when the goods are unloaded in the US or upon shipment from New Zealand.
Morris says lessons for exporters from the congestion include doing some supply chain modeling: speak to your customer about where your product is consumed or value-added. Consider what it would do to business to make a long-term change in the port you use – because this situation will arise again.
Kotahi Logistics chief executive Chris Greenough echoes Morris, saying: “Spend time looking at the supply chain: there’s a lot of opportunity to find savings in most supply chains we see.
“Collaboration is probably key to finding these efficiencies, either Kotahi style or in another style.”
But Greenough says ports worldwide can also be congested due to seasonal peaks and troughs in shipping.
“But we don’t see global underinvestment; some ports have spent significant amounts.
“If they resource up for a peak but are idle for a chunk of the year over-investment would mean increased levies on carriers and then increased freight rates.”
Landside congestion is not because of big ships, says Maersk Line NZ managing director Gerard Morrison.
“Big ships have been around for a while. We have had 16,000 TEU, and so an extra 2,000 TEU won’t collapse the landside infrastructure.
“The cargo volumes being moved are not a surprise; it’s a long time before the ship arrives. People should be prepared for it.”
The US strikes and weather in Europe and North Atlantic have been particularly bad, leading to service delays and the need to take different routes, Morrison says.
Most of Maersk’s 8,500 new 20ft reefers made for New Zealand are in the country, with the rest finding spots on ships soon, he says. It’s mostly additional stock but also some replacement containers.
“This is a significant investment: the [smaller 20ft] reefers are seldom used elsewhere in the world and are a growing business almost only in New Zealand. Kotahi Logistics, who gives us security of business [through a 10-year supply deal], will use some but not all of the reefers.
Maersk Line NZ has been involved in testing remote container management software to help exporters track and manage reefers, and hopes to launch the system in full, later this year.
Morrison’s constant request to shippers is to get better at forecasting volumes. “Visibility is key to cost reduction and efficiency [in shipping].”
Peter Morris, meanwhile, says challenges are looming with the Resource Management Act in terms of legal title to reclamation of the seabed and ports’ rights to use harbours.
And the Commerce Act review that has been languishing since 2011 will go through this year to regulate the carrier consolidation that’s happening, he says. “We need collaboration but not collusion.”
On the subject of fuel surcharges, it is coming down in Australia but not in New Zealand because there is no mechanism for calculating it, Morris says.
“No one is sure of the cause of the drop in oil prices or where it will go; but it drives a carrier’s port schedule.”
Pacifica Shipping operates two coastal container vessels offering weekly services that converge on Auckland and Tauranga ports at the end of the week, connecting with the majority of international services cycling through those ports.
Chief executive Steve Chapman expects that bigger ships might not be able to service some smaller ports. But exchanges will be bigger and cascading off these will be opportunities for Pacifica. The company could increase capacity by replacing its smaller ship with a bigger one, and opening new routes.
Kotahi Logistics’ Greenough says historically for exporters the constraint was leaving the New Zealand port – but now it’s at the transhipping ports where larger vessels involved in transhipping sail less often, compared with the smaller ships ten years ago.
“If a ship’s arrival was a day late you sailed on the next feeder, but now you can wait half a week.”
Another global issue is the quality of upfront schedules and booking commitments. Greenough says. “Maybe the schedule is wrong – it’s not necessarily the ship is late.”
But the schedule integrity is getting better as carriers spend more on technology and provide better tracking information, he says.
Another driver is the freight rate. Greenough says ocean freight rates were significantly higher ten years ago but since the GFC have declined globally.
The effect is that ships are not making much money on freight so they have less incentive to speed up to get back on schedule.
Mary MacKinven is an Auckland-based business writer. Email [email protected]