Reefer rate hike 'flawed' in context of SA citrus trade

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.