SHIPPING All at Sea – Managing a sea change in shipping

When the nation’s lamb, kiwifruit and milk powder are loaded at the Port of Tauranga or Ports of Auckland they may be setting off on the first leg of 45-day round trip taking in Los Angeles, Oakland, Vancouver and Seattle with Tahiti and/or Hawaii thrown in for good measure.
It’s part of our country’s all-important international trade of which sizeable chunk goes by sea.
At the moment, nothing sets tongues wagging more than the upcoming merger between industry biggies AP Moller-Maersk and P&O Nedlloyd. Respectively the world’s largest and third largest container shipping lines, once joined their combined muscle will give them some 17 percent trade share of the international liner container business. That’s huge in shipping terms. It’s especially significant in New Zealand. Get yourself copy of the Shipping Gazette and you’ll see that P&O and Maersk pop up on almost every schedule advertised.
Brian Stocking, general manager of Hapag-Lloyd Container Line, is not alone when he describes it as merger that will change and revolutionise the whole of the global shipping industry.
In New Zealand, dairy company Fonterra and, to lesser extent, several other primary producers, are heavily reliant on the two lines to carry their cargo to the outside world. In Fonterra’s case this means an estimated 80 percent of its eggs (well, milk, cheese and butter, anyway) will soon be in the one basket.
Not surprisingly, the situation is raising in other shippers’ minds the prospect of who else could step up and take some of the business. Behind closed doors new consortia and partnerships are being discussed.
The official line from Fonterra is that it’s very comfortable with the merger. But numerous sources say that behind the scenes they are frantically running around looking for third and fourth major carrier to take up part of what the two parties would otherwise wind up with.
At the time of writing, among the many issues to be resolved were strategy and branding, and the all-important question whether the newly merged entity would follow P&O’s conference approach – which has to date seen it operate in tandem with other companies offering combined service – or Maersk’s preference for non-conference system of business.
Note that in Maersk’s case this preference rather than an absolute rule. For while the company usually operates alone in most trades, it is involved in some cooperative agreements in both this country and Australia on routes to the United States and Asia.
For now, the short answer is that no-one knows what will eventually play out. While the shipping business is agog with speculation on what the merger will mean, COSCO New Zealand general manager Stuart Ferguson is rock-solid certain that Maersk already has blueprint with the names of the people who’ll be working for the company at the end of next year.
“That will include where they will be, what offices they’ll have, what ships they’ll keep, which ones they’ll change to what trades and how they’ll wind out of the existing arrangements that P&O has with other carriers.”
But while the merger was expected to be finalised at the end of August, don’t expect to see all of its ramifications for New Zealand play out immediately. Most industry players that we spoke to reckoned it could take full 12 months before the dust settles and new outline for New Zealand shipping emerges.
The fact that we’re relative small fry in world terms could lead to New Zealand being used as testing ground for any changes planned for international operations.
Brian Broom, managing director, New Zealand, DHL Danzas Air & Ocean and president of the newly-formed International Forwarders Association, suggests that New Zealand’s small size but “reasonable” amount of trade, our flexibility, mature workforce and the fact that we speak English could make us prime candidate for pilot operations prior to any worldwide rollout of new systems.
The Maersk / P&O merger is undoubtedly big news in shipping and trade circles. “Bigger than Ben Hur,” as Geoff Davy, general manager Oceania Trade Management Centre for NYK Line (NZ) puts it.
Craig Landon, Australasian line manager for FESCO Australia North America Line (FANAL), who believes the P&O brand will eventually be retired, sees the merger in terms of the potential disappearance of an icon.
It is, he says, the biggest change in the shipping world since P&O swallowed up Nedlloyd more than decade ago.
Hapag-Lloyd’s Brian Stocking sees the “major changes confronting the industry” as an opportunity to expand and is “optimistically confident” that this will happen.
Rod Grout, chief executive of Lyttelton-based transport and logistics specialists Pacifica Transport Group, is unashamed in his positive reading of the situation’s potential. The “light at the end of the tunnel” in his mind could be decision by the newly merged entity to decide to rationalise ports again in New Zealand.
Grout, whose company runs the country’s only two existing specialist coastal ships, imagines scenario in which international shipping services will call at just one or two ports in this country, re-opening opportunities for an improved local coastal shipping service.
“Let’s put hypothetical situation,” he says. “The international lines decide only to come in to Tauranga or Auckland, and not to come south. Then, lot of export containers will need to be moved to the North Island.”
The options? fleet of small coastal ships or – just as equally, of course – rail.
While the activities, real and imagined, of Maersk and P&O are focusing the collective minds of the New Zealand shipping industry, China continues to flex its economic muscles.
The capital cost of shipping has skyrocketed as demand for shipping tonnage in China has ballooned. COSCO’s Stuart Ferguson says the cost of available tonnage has escalated through previously unheard of ceilings.
China’s trade with the world is huge and growing. In practical terms that means demand for large vessels – ones that are way out of the league of small-time New Zealand.
We don’t have the demand to move such volumes and even if we did, our ports are simply too small to cope with the larger ships plying international waters.
Here in New Zealand we’re being hit by what industry observers call the cascade effect as shippers on other routes turn their attention to smaller and smaller vessels to keep the engines of commerce moving.
To give an example: Ferguson says that has resulted in the cost of small container ship utilised by his company in the Asia to South Pacific trade and costing about $6400 in December 2003, costing closer to $18,000/day two months ago. Nor, he says, is this at the top end of the scale of increases.
Davy predicts that in one to two years’ time companies such as his would be increasing the size of their vessels covering New Zealand trade.
“Companies that may be operating ships with 1600 TEUs [twenty foot equivalent unit/containers] might go to 2500 TEUs or something like that.”
NYK Line (NZ) director Steve Lloyd says the pressure is on to provide mainland Chinese stop. Adds Davy, “it’s only matter of time before we have permanent call in China”.
Meanwhile, China’s thirst for trade is stressing international steel prices. Gobbled up for multitude of uses including in shipping containers, ships and, of course, manufacturing, steel prices have skyrocketed.
“A few months ago we were supposed to close deal on Friday,” says FESCO’s Craig Landon, whose company also buys containers, “but it went through the following Monday and the container supplier said it was going to cost us another $4.5 million. That was in just two and half days.”
Then there are fuel prices, which have ballooned beyond expectations. In November 1999, recalls Ferguson, shipping companies were paying around US$94/tonne for bunker fuel. Six months earlier they had been paying US$64/tonne. That was perhaps somewhat artificially low, he admits. “But cur