Shipping from the edge of the world presents one of the most challenging tasks for New Zealand exporters seeking to send cargo to customers across the ocean.
Given the recent quest among global shipping lines to repair their bleeding balance sheets, exporters can expect ongoing attempts by carriers to increase rates.
Cost cutting measures by liners, including slow steaming of vessels to save fuel, have also resulted in longer shipment times on some routes for Kiwi exports.
According to UK shipping analyst Drewry, there is still excess global capacity for containerships and heavy underutilisation. Negotiated freight rates on the key east-west trades are seen trending higher in 2013 against the low levels of 2012 but many carriers are struggling to make profits due to heavy fleet underutilisation and operational inefficiencies, it said.
Kiwi shipping industry officials are excited about the introduction of bigger vessels to New Zealand waters and the implied cost benefits for our shippers, but some exporters lament the fact that shipping lines have been slow to pass on cost savings to export firms.
Shipping around peak season presents even tougher challenges for exporters who don’t have the economies of scale that Fonterra, kiwifruit or major meat exporters have. Given that about 30 percent of New Zealand exports are shipped as containerised cargoes, container freight rate movements can impact the economy significantly.
Freight rates on the rise
Freight rates have been on a rising trend since the end of last year after seeing the full-scale impact of the global recession-induced plunge in 2009. Shipping lines have been moving to restore freight rates since last year. As an example, Maersk announced late last year a general rate increase (GRI) of US$1,500 per 40-foot container for refrigerated containers.
For a medium-sized shipper such as Southern Fresh Fruit Exports Ltd, such a sudden bounce in ocean freight rates can be debilitating. Director John Thompson notes that the big rate increase announced was a reflection of shipping companies trying to restore their profitability. Liners have also been adjusting the bunker fuel contribution rate which adds to the cost of shipping.
Thompson’s company exports apples and kiwifruit to Asia, and picks up produce from Greece, Spain, South Africa and Chile for re-exporting.
Catherine Beard, executive director of ExportNZ, says members expressed concern about the significant rate increases at the end of last year and the perception there wasn’t much competition among shipping lines.
Subsequent checks with members show, however, that some bigger shippers did appear to “have some leverage” while others have managed to negotiate rates – so the impact of the increase wasn’t as widespread across the exporting community as originally thought.
Greg Steed, chairman of the NZ Shippers Council, reiterates the point that a sharp general rate increase across the board for all shipping lanes was a “blunt” way of addressing profitability issues and New Zealand may be subsidising countries that are not profitable.
“But the real problem we have is this: in extreme cases, such a move can make trade uneconomical,” Steed notes.
New Zealand is always going to be disadvantaged due to its distance away from key markets.
“As far as distances go, you can’t get any further away from markets than being in New Zealand,” says Chris Greenough, chief executive of Kotahi Logistics LP Ltd.
Further, the move to slow steam vessels to save fuel costs have had impact on service out of New Zealand.
“Shipping companies slow steaming has resulted in degradation in service; goods are taking ten to 15 days slower across to Europe compared to what they were five years ago. This has a major impact for meat exporters,” says Greenough.
He is also of the view that the blanket increase of US$1,500 for 40-ft containers isn’t reflective of the profitability of all the shipping lanes, certainly not the New Zealand trunk.
Small fry, tough bargain
The gist is this: the small fry in the ocean gets less bargaining power. Hence it makes sense to plan ahead for space requirement, or link up with the bigger players who can offer some bargaining clout.
Yet for a company such as Southern Fresh Fruit Exports, planning ahead isn’t necessarily feasible when you are a operating in the spot market.
One exporter who ships manufactured drinks says peak season freight charges on top of the high New Zealand dollar has made it hard for the productive sector to export unless industries can improve productivity or benefit from a lower Kiwi dollar.
Something’s got to change to ensure New Zealand remains a viable trade route for shipping lines. Kotahi Logistics LP was set up to create economies of scale for shippers. Greenough says non partners can use Kotahi to gain bargaining clout. Kotahi’s current partners are Fonterra and Silver Fern Farms.
Maersk NZ managing director Julian Bevis says shipping lines’ shareholders have had a fundamental change in how they view the erosion of shareholder value; hence there is a focus on cost savings, profitability and viability of routes.
He says in the past shipping lines have added peak season loaders to cater to demand from Kiwi primary producers. “I don’t think anybody is doing it, putting on peak season loaders. It doesn’t make money.”
Analysis prepared by the NZ Shippers Council show that between February and April, exports tend to peak but volumes fall back to trough around September before picking up again around spring time.
One shipping line’s sales manager says it is always a challenge to have enough space to cater to peak seasonal demand.
“All carriers face the same situation (of insufficient capacity around peak season) – in some cases carriers restrict people to certain space allocation when everybody’s trying to ship cargo out of New Zealand.”
Liners have been consolidating their services and for New Zealand to Europe routes, there has been sharing of slots on vessels rather than individual liners bringing vessels to New Zealand.
It’s all about the planning
Bevis and other shipping industry experts advise exporters to plan well in advance, and commit to space. They acknowledge that for smaller exporters, this may be a bit more difficult.
“The days of mass direct service are over. No market in the world is immune to the possibility where (the) liners say ‘this is not worth it’,” says Julian Bevis.
“New Zealand is more prone geographically as an outlier. The market is highly seasonal, the volume is small, there is lots of imbalance. Legislative changes (proposed Cartel Bill) are potentially not helpful,” Bevis says, adding that any move by legislation to add costs to operations will deter shipping lines from operating out of New Zealand.
The bill seeks to penalise cartel behaviour and address aspects of the current competition regime in New Zealand.
Greenough from Kotahi agrees that some fundamentals have to change. “The current model is not a sustainable one – not for the long term. We need a model that ensures there is enough capacity to get cargo to destination without undue pressure on price if carriers are full.”
The consolidation of services has led to vessel sharing, much like airlines’ code sharing system. Maersk, for instance, has stopped going to Tahiti, and no longer offers a direct service from Oceania to the West Coast of America but it will tranship there. In New Zealand, it has stopped calling into New Plymouth and Timaru.
“Shipping lines can leave New Zealand at any moment and not notice any dent in their balance sheet,” says Thompson from Southern Fresh Fruit.
Yoke Har Lee is an Auckland-based business writer. Email [email protected]
Getting the export documentation right
The cardinal rule for getting your cargo consignment ready for export is to have the required documentation in order.
A Certificate of Origin (COO) offers exporters the concessionary duty rates in countries where Free Trade Agreements are in place.
Independent Verification Services (IVS) has a team of experts with an in-depth understanding around FTAs and can help customers determine if their goods qualify for a COO.
IVS quality technical manager David Baker says the process can be challenging depending on what products are being exported.
Some of the common problems and challenges exporters face are:
• Getting the correct Harmonised System (HS) code.
• Ensuring the name of the good matches the HS code within the New Zealand working tariff document.
• Providing the necessary supporting documentation to prove a good qualifies.
Villingi Young, IVS’s resident expert in exporting is an integral part of guiding companies through the export process. “By having the knowledge and fully understanding the requirements of the agreements, we provide practical solutions – turning obtaining certificates into a seamless process. Our online system stores and saves information and certificates, plus enables customers to track and trace their certificates.”
The beauty of getting the certificate of origin right is that once it is saved in the system,all the hard work is done.
• Freight rates will continue to rise as liners aim for better profits.
• Kiwi exports may take longer to reach customers, with slow steaming and less direct services.
• Shipping lines have stopped adding peak season capacity to New Zealand.
• Small shippers have better bargaining power when they consolidate with others.
• Plan well in advance. Work with your freight forwarder to ensure space during peak season.
Will super-sized vessels come here?
There is very little likelihood of a super-sized containership docking at a New Zealand port. Not in the near future, anyway.
Larger and larger container vessels are being commissioned by shipping companies to pack in as much cargo as possible. Maersk is committed to 20 such vessels, scheduled for delivery over 2013 and 2014.
At 18,000 TEUs, the Maersk’s Triple E class ships are 16 percent bigger than Emma Maersk, the company’s current largest container ship. The Triple-E will produce 20 percent less CO2 per container moved compared to Emma Maersk and 50 percent less than the industry average on the Asia-Europe trade lane. In addition, it will consume approximately 35 percent less fuel per container than the 13,100 TEU vessel.
The largest container vessel that has sailed into a New Zealand port is 4,600 TEUs. Will bigger vessels be deployed to New Zealand? And if they come, will our exporters benefit from any cost savings liners derive out of these vessels?
The NZ Shippers Council, in a document prepared in 2010, pushed the case for at least two large local ports to be prepared for vessels carrying 7,000 TEUs.
Three ports have voiced ambitions to host bigger vessels: Ports of Tauranga, Lyttleton Port and Otago.
Greg Steed, chairman of the Council says the estimated benefit to New Zealand for when big vessels sail here is in the region of $338 million. “Bigger ships are more fuel efficient, offer more flexible rotation, and carriers get real benefit from them.”
Ports of Tauranga CEO Mark Cairn says his port is confident it will be “big-ship capable” in 2014. “We are halfway through our capital expenditure programme. Last year, container volumes grew 25 percent. We have a very good range of services, work very hard as a terminal operator and we’re benchmarked as one of the most productive ports in Australasia.”
The first stage of the port’s enhancement will help cater for ships between 5,000 and 6,000 TEUs, and the second stage, for ships of 8,000 TEUs. Container vessels of 6,000 TEUs produce 31 percent less carbon dioxide emission compared to a 2,600 TEU vessel, the Council says.
Maersk NZ’s managing director Julian Bevis is of the view that bigger ships will probably come “later rather than sooner” and this has nothing to do with ports not doing the right thing.
“It will be a while before vessels of that size (8,200 TEUs) come here. The next step is for vessels of 4,500 to 5,000 TEUs, calling in the next year or so. It is all highly dependent on world fleet deployment.”
Kotahi Logistics Chris Greenough says for large ships to sail here, liners have to be convinced there is sufficient demand.
“It is a risk for carriers – to bring bigger ships or increase capacity to New Zealand. The issue is how do you encourage carriers to bring the capacity? It is really a shared responsibility – working on how to ensure we share risks with the carriers.
“Will it be cost efficient for carriers to come to New Zealand with their big ships? There is certainly the need for the community (shippers/carriers/ports) to ensure cargo consolidation – to one or two ports of call – against the ten container cargo terminals currently on offer. That’s a big challenge. Traditionally, New Zealand is not built around cargo consolidation. We are built around port and roading infrastructure,” he says.