Shipping lines gear up for growth

AN OIL price hovering near the $100 a barrel mark will inevitably result in bunker adjustments being imposed on exporters and importers by shipping lines, Safmarine Container Lines’ recently appointed chairman, Eivind Kolding, has warned.

Fuel costs were taking up a greater and greater share of Safmarine’s total shipping costs and would have to be passed on to customers, Kolding said at a press conference during a visit to SA from Denmark, where Safmarine’s parent company, the AP Möller group, is based.

“Certainly there will be an impact on our customers for the bunker prices, that is for sure. There is no other way with the very high oil price we have now, which has not really been passed on to our customers.

“We are looking at ways of sharing this cost with industry and are considering the introduction of a bunker adjustment formula to compensate us for higher bunker oil costs. The margins in container shipping are not so big that we can actually shoulder such a large increase in fuel costs,” Kolding said.

Another mounting cost for shipping lines is the infrastructure backlogs throughout the world, which result in costly congestion and delays. A few years ago Safmarine and other lines imposed a $100 per container congestion surcharge in Durban because of berthing delays of more than 16 hours. This was subsequently lifted, but Kolding said it was a cost recovery instrument that would be used again in future if necessary — Safmarine recently imposed a congestion surcharge in the UK.

Bottlenecks and the lack of global investment in infrastructure in ports and inland transport systems are a big concern for the industry in light of the fact that container volumes are expected to double in the next eight years.

Kolding could not quantify the cost of delays but said if the group was able to run an optimal operation, it would derive a benefit of roughly about 5% of total revenue, or tens of millions of dollars.

This was quite apart from the cost to the economy caused by the delays in terms of the added cost to exports and imports. “It is a critical situation at the moment all over the world, and as we see it, it can only get worse. If we take a global perspective we see a growth in the container business of between 8% and 10% a year, but the investment in infrastructure is only increasing capacity by 3% to 4%.”

Infrastructure investment was lagging in Europe, the US, Asia as well as in SA, he said, acknowledging that Transnet has embarked on an R80bn investment programme to expand freight and port capacity.

Safmarine MD Lars Reno Jakobsen said the company was pleased to see Transnet’s projects coming on stream, but emphasised that they were only sufficient to address the backlogs that had accumulated over the years and not the future strong growth forecast. Planning had to take place now for the next wave of investment, which would take about 10 years to bring to fruition.

As Durban is the biggest container port in Africa and a vital conduit to the industrial heartland in Gauteng, there are few other options for shipping lines, though Safmarine Container Lines NV CEO Ivan Heesom-Green said the development of Coega would hopefully offer an alternative gateway to the hinterland. Investment in the port of Maputo could also open up this traditional traffic route to Gauteng.

Kolding said freight rates were expected to remain stable in future irrespective of the large global order book for new ships by the industry, which would see the existing fleet increase by 60% over the next three to four years. “We see that demand and supply is finely balanced and so see a stable environment going forward.”

Demand for containers is strong, and Kolding said the current 10% a year growth would continue for some time as Chinese economic growth and the outsourcing of production to low-cost countries powered the global economy.

In this context shipping lines had to deal with the fact that world growth had become unbalanced. Strong exports from China and other Asian countries meant that more and more ships were moved fully utilised out of Asia, but only half or fewer were full going back.

The AP Möller group controls about 17% to 18% of world container shipping market when measured in terms of ship capacity under control, and it expects that this share will increase as the industry consolidates. Kolding said consolidation would be driven by the slim margins and the benefits of economies of scale.

Source:RamblerNews