Shipping lines face a double-edged sword

Alliances and acquisitions are
likely to be the order of the
day as shipping lines face the
challenge of the biggest gap
ever between demand and
supply. And in a market where
volumes are shrinking, it’s
bad news for any form of rate
restoration for the lines.
“In 2014 1.5m TEUs of
capacity was
injected into
the global
network, and
in 2015 a
further 1.7m,”
managing
director of
Safmarine
in southern
Africa, Dirk
Hoffmann,
told FTW.
“So we have
this cascading
effect where
bigger and
bigger ships
are coming
down to our coast. The
average size ship on the Asia-
SA route today would be three
times bigger than the ‘Great
Whites’ we used to operate
from South Africa to Europe,”
he said.
Combined with the
contraction in trade – imports
were down 6% and exports
4% in the first two months of
the year – shipping lines are
facing a double-edged sword.
And there’s little chance
of container market growth
in 2016. “It is likely that the
declining trend recorded
during the fourth quarter of
2015 will continue into the
first half of 2016,” said trade
manager at
Maersk Line
southern
Africa,
Matthew
Conroy. “As
the rand
remains
volatile,
imported
goods will
remain
expensive to
South African
consumers
who already
have less
money to
spend.”
According to managing
director Maersk Line southern
Africa, Jonathan Horn, the
sharp decline during the
fourth quarter of 2015 was
not isolated to one sector or
one trade.
“The Asian import market
in particular was down by 9%,
which is a sign that the weaker
rand and lower consumer
confidence are weakening
import demand.”
Managing costs and
improving efficiencies is the
way forward, according to
Hoffmann. “We look at the
network every single day. In a
business like ours we have two
main costs. First it’s the cost
of running our ships on the
global network – and equally
crucial are the terminal
costs which are a significant
contributor to the total cost.”
Shipping alliances were
key to managing both cost
and capacity, he said. “Of
course we would all like to
run own networks but it’s not
sustainable. As uncomfortable
as it is for the various lines it’s
a marriage of necessity.”
And while Safmarine will
not necessarily be looking to
join new alliances, it will be
building on those already in
place. “For example we have
an alliance with CMA CGM
on the Africa-Asia trade route
and will continue to look at
opportunities with CMA on
that basis.”
It’s all about deploying
ships in a more efficient way
– and the recent Cosco/China
Shipping and CMA CGM/
APL mergers are evidence of
the trend.
It’s a trend that has seen
the industry becoming
increasingly commoditised
which means value-add
becomes a critical component
for every line.
“When the tide goes out as
the economy is doing at the
moment there is only
one thing you can
do - and that is
be better than
your competitor.
And the only
way to do that
is through your
customer’s
experience,”
said Hoffmann.
“We have
been working
on automating a
lot more of the
transactional
elements
– using
systems and internet
platforms in a more deliberate
way.”
The line’s customer service
facility is now centralised in
Mumbai and has resulted
in 30% fewer people at the
front end of the business.
“Ultimately we trade
only in information,”
said Hoffmann.
“In time we
will become an
information
business with
a shipping
service – not
a shipping
service that
uses IT.”
INSERT & CAPTION
In time we will
become an
information business
with a shipping
service — not a
shipping service that
uses IT.
– Dirk Hoffmann