The Citrus Growers’
Association (CGA) has
come out strongly against
a proposal by Maersk Line
and Safmarine to impose a
global freight rate increase
for reefers of US$1 500
per 40-foot equivalent unit
(FEU) from January 1 next
year.
Said CGA CEO Justin
Chadwick: “In our view
the basis for Maersk Line
and Safmarine’s decision
to increase freight rates is
deemed to be overzealous
and somewhat flawed in
the context of the SA citrus
trade.
“The rate increase has
now been announced
publicly and prior to freight
rate engagements with the
two lines ahead of the 2013
negotiations.”
Fruit SA constituents, he
added, have individually
drafted an impact
assessment in response to
the proposed US$1 500
increase (the equivalent
of about R12 750/FEU or
R6 375/TEU in SA terms).
This concern in the citrus
trade saw David Williams,
then Southern African
MD of Maersk Line,
call for a mid-September
meeting between the lines’
management and the CGA’s
Piet Smit and Mitchell
Brooke.
The gist of the
explanation for the massive
freight rate increase was that
it was based on the future
capital requirements needed
to invest in new reefer
equipment. This, according
to the lines, cannot be met
on the current freight levels
and hence the need for an
adjustment. This is similar
reasoning to that of Thomas
Eskesen, senior director of
reefer management for the
AP Moller Maersk Group,
who was interviewed for the
FTW earlier this year.
Said Chadwick: “It has
also been determined that
there is a 5% year-on-year
increase in global demand
for reefer equipment and
if there is to be no major
investment, there will be a
severe global shortage of
reefer containers to meet
this demand in the future.”
This was confirmed by
Eskesen, who told FTW
that, with Maersk having
a reefer market share
in excess of 20%, this
restriction in acquiring new
equipment was going to lead
to a supply/demand gap in
the market.
On its own estimates, he
added, if Maersk Line did
not recommence investment,
global reefer container
demand would outstrip
supply by 9% by 2015.
But the CGA members
have dismissed the basis
for the increases as being
“flawed” in relation to the
SA citrus trade.
Said Chadwick: “There is
no plausible explanation that
warrants such an increase
based on the current SA-EU
freight rates, which are
considered to be sufficient
to realise a return on
investment in equipment
needs and still generate a
profit over and above this.”
Noting that production
and logistics costs are
already a heavy burden
on the citrus industry, he
says other lines are likely
to follow suit. “The future
of the citrus industry looks
difficult in terms of returns
back to the farmers,” he
said.
Chadwick also spoke out
against the call by Maersk
Line CEO Søren Skou at the
Cool Logistics conference
held in Antwerp recently,
for producers and suppliers
to renegotiate prices that
they receive for their
produce ahead of the 2013
increase.
This, said Chadwick, was
seen to be “unreasonable
and unrealistic” in that
citrus sells predominantly
on the principle of “price
taking” rather than “price
negotiating”.
These container rate
increases, according
to Chadwick, will give
a significant boost to
exporters’ demands for bulk
reefer vessels. “They are
in short supply,” he added,
“but will provide adequate
tonnage on key routes.”
CAPTION
Citrus export squeeze ... production and logistics costs a heavy burden
on the industry.
