Massive overcapacity has threatened the viability of shipping lines who have been busy consolidating. New Zealand container capacity has been affected by shipping companies streamlining their routes.
BY: LOUISE BLOCKLEY
From his calm enclave overlooking Auckland Harbour, Simon Edwards, Hamburg Süd’s New Zealand general manager, commercial, remains upbeat though realistic about global economic and shipping turmoil. “There is no doubt we are faced with a situation that is very grim but you can’t run and hide. It boils down to understanding your cost base to become sustainable and managing the relationship you have with your customers,” says Edwards.
Global shipping losses are staggering. Some estimates expect the industry to lose more than USD32 billion in 2009; almost 500 ships are sitting in layup – 11% of worldwide capacity.
Due to global overcapacity some new container ships ordered in the boom times are heading direct from the yard to layup berths.
Asia is the popular layup spot being the cheapest and most widely expected to spearhead any “bounce back” in cargo. Anchorage for unused ships is becoming a new business opportunity.
CASUALITIES
Major casualties are possible but Edwards is confident Hamburg Süd will not be one.
It’s owned by the Oetker Group, a large German family business with turnover of 7.7 billion Euros. Edwards cites diversified group interests – banking, wine, beer, shipping, food, and luxury hotels – as a financial safeguard.
“Hamburg Süd is suffering but to some extent less than the large global carriers. We have minimal exposure to those East-West trades which are the ones that are really suffering.”
Hamburg Süd New Zealand claims the number two spot for this country’s container volumes – approximately 150,000 twenty-foot equivalent units (TEUs) annually. Total New Zealand volumes are estimated at between 1.3 and 1.8 million TEUs – less than 1% of world container trade.
Following four years of rapid growth both organic and through acquisition, Hamburg Süd New Zealand is now in a “consolidation phase”, Edwards says.
“Hamburg Süd and our original Columbus Line (brand) started containerisation in New Zealand in 1971 and we are the only shipping line still here. One of the key facets to effective management is that you need to know when to grow and when to pull back and consolidate in challenging times.”
The first blow in 2008, prior to the financial market collapse, was bunker (marine fuel) prices almost tripling and ship prices skyrocketing, making many trades uneconomical.
Then recession really hit with demand dropping dramatically while capacity continues to increase. New Zealand imports have dropped by approximately 20% providing fewer containers to meet steadier export demand.
MATTERS OF CONVENIENCE
Hamburg Süd’s local fightback at rising bunker costs was joining forces with Maersk Line on the Trident service to the US East Coast. Two other carriers withdrew from New Zealand, now just calling at Australia. Another two in the South Asian trades merged and removed tonnage for operational efficiency ultimately reducing New Zealand container capacity.
More changes are on the horizon – declining import rates which were previously the mainstay of profitability mean carriers’ bottom lines are hurting. Hamburg Süd is discussing a merger of their Asian services with other lines to balance supply and demand and create a sustainable system in a tough economy.
“From a financial perspective we are hopeful we can because we really want to stem the blood that’s coming out of the systems at the moment. You’ve got shipping lines globally who wouldn’t have thought they would be operating together and now suddenly they are as a matter of convenience.”
TRANS SHIPPING
Other changes recently saw the end of the longest trade lane in the world – direct weekly services to Europe.
Hamburg Süd’s non-perishable cargo is now trans-shipped onto vessels in Cartegena, Columbia adding two to three days on transit times.
Chilled meats and perishables are trans-shipped in Manzanillo, Panama – costing more but satisfying the need for faster transit.
Edwards says they have tried to hold direct services as long as possible but running smaller ships with less cargo on long routes is no longer viable – the fuel cost alone is millions of dollars per voyage. He believes transhipment operations are now more reliable and sophisticated and is confident of continuing levels of service.
“What we will see in the future is larger ships coming to New Zealand. Rather than having lots of ships in the 1,700 to 2,500 TEU size, we will have larger systems of more than 4,000 TEU and there will be a concentration of services.”
Those ships will call at less New Zealand ports and smaller coastal shipping will become important for distribution.
“With the import issues happening now we probably won’t see any light until the second half of 2010.
So we have to put ourselves in a position where we can take cost out, consolidate for the next 18 months then when things turn we will look to grow again.
We are not going anywhere. We see closer relations with our clients as driving increased knowledge and together we can plan what we have to do to survive this.”
KEY TAKEAWAYS
- Global shipping losses are tipped to hit USD32 billion in 2009.
- Almost 500 ships worldwide are sitting idle.
- More shipping lines are expected to merge services to consolidate routes and capacity to survive.
- New Zealand will see larger ships calling at fewer ports in the future.
- Hamburg Süd New Zealand is currently discussing a merger of their Asian service with other carriers.
