An increase in volumes, the growth of ‘smart ports’ and Belt and Road initiatives are positive for the Asia-Europe trade, but could mega ship ordering upset the delicate supply and demand balance?
Volumes on the Asia-Europe trade have strengthened slightly since last year – but a question mark remains over whether demand and supply will stabilise as there has been an influx of mega box ship orders slated for this trade.
These ever-bigger ships mean there is a larger emphasis than ever on ports being as efficient as possible to handle these behemoths smoothly. This ties in with a greater focus by ports in both Asia and China to become ‘smart’ and deploy digitalisation initiatives.
Container Trade Statistics’ latest volumes for this market show some growth compared to last year, with container volumes on the Far East–Europe trade up on Q1 2019 versus Q1 2018 by 4.47% and by 5.84% in Q2. These are the latest quarterly figures collected by CTS, but July and August show increases of 3.91% and 1.96% respectively.
Trade growth has been even stronger on the other leg. Volumes on the Europe–Far East route climbed by 3.49% in Q1 and by 8.41% in Q2. In July and August, they rocketed by 9.28% and 13.48% respectively.
One reason for these stronger volumes could be the US-China trade war. UK consultancy Drewry says “The trade appears to be benefiting from trade diversion related to the US-China trade war, with Chinese exporters looking to Europe to fill the shortfall of US traffic.”
More mega ships
After an ordering lull, ultra large container ship orders have picked up this year. In October it was revealed that Evergreen has clinched a US$920M deal with Samsung Heavy Industries to build six giant box ships – surpassing the world’s largest container ships with a capacity of 23,756 TEU.
And also in October, Daewoo Shipbuilding and Marine Engineering (DSME) announced an order for five 23,000-TEU box ships.
DSME did not reveal the carrier behind the order, but according to media reports, MSC inked the contract for the five 23,000-TEU container ships, worth US$762M. The latest ships ordered are slated for delivery 2021.
MSC has boosted its fleet this year with the world’s largest box ships: MSC Isabella is the sister ship of MSC Gülsün, the world’s largest container ship, and forms part of a new class of 23,000+ TEU vessels to be added in 2019-2020 to the global shipping network of MSC.
Ports have been hard at work boosting efficiency to accommodate the mega ships.
Indeed, as a Drewry webinar on global ports highlights, there is an ever-greater focus on smart ports. Its senior analyst ports and terminals Neil Davison says “With smart ports and digitalisation it is difficult to separate the hype from reality; different ports face different challenges and need different solutions. But it is not just about automation.”
He says smart ports need connectivity to the outside world as well as connectivity inside the port, a focus on real-time information to optimise port operations and data analysis for continual performance improvement.
He warns “It is a digital revolution and some ports might not survive if they do not adopt some type of digitalisation. Ports are adopting it gradually in phases, which is a wise approach.”
Asked if anyone has measured the value of specific smart port initiatives, he singled out ports in Europe. “A couple of ports, for example Rotterdam and Valencia, are quite high profile smart ports and have been seeking to measure the benefits. Port of Rotterdam estimates a 5-10% saving in dredging costs due to using real-time information and AIS.”
Indeed, Port of Rotterdam was present at the Dubai Maritime Agenda conference, where one session looked at how the combined efforts of adopting blockchain, internet of things technology and artificial intelligence would streamline international container transportation.
Port of Rotterdam head of digital strategy and transformation Martijn Thijsen said security would be a top priority for blockchain implementation. “It is about the ecosystem being ahead of hackers and for that we rely on software providers,” he said.
Mr Thijsen thinks trialling blockchain under a joint industry collaboration would ensure the technology is secure and effective.
“Key to this is co-operating with partners to test blockchain in a sandbox [virtual testing platform]. We are talking with partners and bringing in operators,” said Mr Thijsen. “We need to be open and collaborate in business. We need to share data as data can be valuable when processed.”
Elsewhere, Port of Hamburg will be able to receive ultra large container ships more efficiently after it was given the green light to dredge the River Elbe. This has been an ongoing issue for many years. The River Elbe needs dredging to boost the movement of ultra large container ships through the port. Dredging the River Elbe by 1 m will allow more ships to enter and exit the port at the same time.
Port of Hamburg Marketing chief executive Axel Mattern tells Container Shipping & Trade, “It is quite a process, to prepare for the dredging activities. The processes are divided into dredging and building the box where the larger vessels, up to 22,000 TEU, can pass each other.”
The benefits of this work are clear: it will double the number of big ships that can enter the port. The work will be finished in 2021.
Belt and Road boost
M&A activity within Europe by Chinese port authorities has also been a growing trend. The stakes by COSCO in Zeebrugge and Piraeus has led to positive port investment. In the Drewry webinar Mr Davidson said, “What is clear is that generally, when Chinese players acquire ports and terminals, they go on to invest in new equipment, upgrading where needed, so this naturally helps operational performance. In some cases, notably Piraeus, they also bring substantial new transhipment traffic.”
The investment by Chinese terminal operators in European terminals is part of the country’s Belt and Road initiative. This initiative is having a positive impact on the Asia-Europe trade. For example, Antwerp Port is forging closer links with China. Its director of international networks Luc Arnouts says, “This is enriching the choice for supply chain management with maritime, rail or air, as at the Port of Antwerp we can offer all possibilities.”
One key issue affecting rates and shipper carrier relationships in this market are the surcharges levied by ocean carriers. The Global Shippers Forum (GSF) met in London to discuss this issue.
Freight Transport Association deputy chief executive and GSF secretary general James Hookham told Container Shipping & Trade, “Shipping lines are still buying ships that are too big for the trade available and slashing base rates to fill them to get economies of scale. They have not got a securely profitable business as a result of that and resort to surcharges as a way of making up the differences.”
“No doubt plenty of shipping line executives would challenge that, but that is what it feels like – shippers being used to find additional sources of revenue, often on very spurious and unjustified grounds to make up the shortcomings of a broken industry.”
GSF board of directors’ chairman and Sri Lankan Shippers’ Council chairman Sean van Dort told Container Shipping & Trade Sri Lanka identified 44 surcharges for Sri Lankan shippers that “had no meaning”. He cited examples “Like shippers are responsible for cleaning the containers or damaged containers when it is clearly the terminals handling them.” He also cited the example of an equipment imbalance charge. “We are not here to manage their fleet… all these surcharges end up on the plate of the consumer.”
On low sulphur fuel surcharges, he said, “This is another façade because fuel costs are already embedded in the costing, so that is double accounting.”
Mr Hookham called for a mechanism to be “actually related to the real cost of fuel around the world, and which will fall as the cost of fuel falls”.
The aim of the GSF is to have a proper, negotiated structure where an all-in price is agreed and where there are “genuinely confidential contracts, so elements like improved service can be negotiated and delivered.”