Over-capacity bogey threatens Far East operators

2 Jun 2000 - By Staff reporter

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Rates could come under pressure, writes Alan Peat

TWO NEW shipping lines - and an estimated 6 800 TEUs (twenty foot equivalent units) - entering the SA/SE Asia/Far East trade, pose a significant threat to the current contenders on the route.
This follows a relatively fruitful 18-months for the lines.
Volume increases began to appear as Asia started to recover from its serious bout of economic flu; Nantai Line collapsed and Cosco shrank its local representation and linked up with Evergreen.
All this meant that the previously unmentionable phrase rate hikes once again became part of the shipowners' vocabulary.
Demand began to exceed supply, and that peak season (mostly in westbound imports to SA) saw the Safari and GEX (Good Hope Express) consortia putting extra ships on the trade.
But the entry of two new lines could throw a spanner in the supply/demand works.
South Bay Line, in association with Express Container Line, intend to run a fortnightly container service on the port rotation: Neva Shiva, Colombo, Port Louis, Durban and return. Although unconfirmed, the lines are expected to be using two 400 TEU ships. However, larger vessels and upgrading to a weekly service ASAP, appear very much in the management's thinking.
Second newcomer is the reportedly Ireland-registered - but Taiwanese and Chinese owned - shipping company, Fu Hai Marine Enterprises.
The latest information is that this line will be running five vessels - possibly as large as 1 200 TEU capacity - on a fortnightly service serving the port rotation of: Busan-Keelung-Kaohsiung-Hong Kong-Singapore-Port Louis-Durban-Cape Town-Lagos-Abidjan and return.
Again, while unconfirmed, the eventual schedule is expected to soon be upgraded to weekly.
In theory, this offers an extra 6 800 TEU capacity to the current supply, and is sufficient to be of concern to present operators.
FTW spoke to four shipping line executives, questioning how they saw this threat.
One who preferred to remain anonymous did not see the new capacity leading to excess. Rather, he told FTW, he envisages it as easing the pressure of demand, while at the same time offering shippers other alternatives.
But, on the other hand, he also accepts that the happy state of rising rates might soon come to an end.
And, while rates are on the way up, FTW's source did not feel that the levels had reached the heights that would really improve shipowners' margins.
George Slade: Safmarine Far East trade executive:
Extra capacity appearing just as Safari and GEX have put additional vessels into their Far East fleets to cope with an expected peak season rush, is a concern to the operators already on the trade, according to Slade.
The second worry is that the peak might not reach the Himalayan proportions hoped for.
It depends what the economy does, Slade told FTW.
This peak is, up to now, not as high as we expected. With the extra capacity (both ours and of the newcomers) it might be spread too thin.
However, Slade feels, the threat to Safmarine is somewhat diminished by the stated South Bay intention of concentrating on the Indian sub-continent, Indian Ocean islands trades, and Fu Hai concentrating on Korea, Taiwan, Hong Kong and Singapore.
Jerry Hookins: G.M. of NYK Line: NYK generally welcomes any competition, according to Hookins: As long as it's reputable.
This to prevent lines, used to the comfort of the status quo, sinking into competitive lethargy.
But, while Hookins acknowledges the new competitive element, he feels that his operation might be less affected than some others.
We operate in certain niche markets, he said. A lot of our cargo, for example, is CKD (completely knocked-down motor car assemblies) - which can't change lines too easily.
A second beneficial factor is the fact that NYK (and the others in the GEX consortium) get a lot of their cargo volumes from Japan. Other services are not serving this trade, said Hookins, so the effect on us will be minimal.