There is no doubt that Atlantic Container Line’s (ACL) new Generation 4 (G4) ship order will have a big impact for the Grimaldi Group-owned shipping line, from the amount of cargo carried, to its port rotation and market share on the transatlantic trade.
The US-headquartered company is moving along smoothly with its order of five roro-container ships (conros) which it placed with the Hudong-Zhonghua Shipbuilding (Group) Co yard in China in August 2012. The new vessels – which ACL claims will be the largest conros in the world – will double the capacity of the company’s current fleet of five G3 conro vessels, which have been serving since 1984. These will be scrapped or sold to the military when the G4 ships are phased in during 2015. The delivery schedule will see the first of the new vessels enter service in the first quarter of 2015, with one more to be delivered in the second quarter, the next in the third quarter, and the final two in the last quarter of the year.
Andrew Abbott, ACL president and chief executive officer, said that the yard was currently involved in detailed design work for the planned newbuilds, and that it was finalising the list of manufacturers to be used for the major components.
“It is narrowing down all the different component manufacturers, to provide the ramps, satellite systems and so forth. We have already decided that Wärtsilä will provide the engine as they gave us a good performance guarantee, warranty period and price,” he said.
He added that ACL had decided that most of the major components would come from European manufacturers. “If we get a breakdown in the future, we cannot afford to wait for parts to be delivered from Asia,” he explained.
The company is still mulling over where to register the vessels. While its current G3 vessels are registered in Sweden, there is no guarantee that the G4s will be flagged there. However, Mr Abbott stressed that it would keep an EU flag. As ACL is a European carrier, the company wants to maintain a high quality European flag and exceed all European standards.
Mr Abbott added: “While we have not decided where they are to be registered, the G4 design registry is the UK, which means the vessels will be constructed to UK standards. These are stringent enough to ensure the vessels are covered if they are operationally flagged somewhere else in Europe.”
ACL has enough cash reserves to pay up to 40 per cent of the project and will finance the rest.
The five G4 vessels will be deployed on ACL’s current trade lane, the transatlantic. They offer a host of benefits for the shipping line to capitalise on. Their capacity of 3,800 teu – a big increase on the 1,850 teu that the G3s offer – will allow ACL to carry much more cargo and grow its market share. This currently stands at 4 per cent, which Mr Abbott estimates will grow to more than 6 per cent once the new ships come into service. He reckons that this share will climb to 8 per cent over the next couple of years, propelling ACL into the top four biggest carriers on the transatlantic. Currently, the company stands at number eight.
Despite carrying more volumes, ACL’s new ships will be speedier but cost less to run than the current vessels. Speed will increase by 10 per cent, but fuel consumption per teu will be slashed by more than 50 per cent.
This is because the vessel’s design, conceived by International Maritime Advisers (IMA) of Denmark, has solved the problem of high ballast requirements on conro vessels. Mr Abbott explained: “Virtually all conro vessels today stow containers on deck and lighter roro cargo under deck. Because of the significant amount of air space that naturally occurs on roro decks compared to the denser stowage of containers, most of the weight rides high on a standard conro vessel, requiring a great deal of ballast for stability. IMA developed the concept of putting all the roro cargo midship, and stowing the containers in cells fore and aft of the roro section. This results in cargo replacing ballast and much more efficient use of vessel space.”
When it comes to taking on more volumes, ACL has a carefully planned strategy in place. While it will look for new customers, the company is aiming for a large part of its volume growth to come from existing customers.
Mr Abbott said: “We will be selective about the extra cargo that we will carry.” He said that while the company would be able to carry some larger shippers’ business, around half of its growth would come from its existing customers, which tend to be smaller and mid-sized shippers.
“We have so many regular customers that we get a full ship fairly easily today and cannot always carry all of the containers offered because our capacity is so small. If someone comes to us with 100 boxes, most of the time we will not be able to handle it. But with our new ships, we can cover all the demand of our regular customers.”
However, he added: “We will not go chasing low revenue, high volume cargo. We will take our time and allow volumes to grow naturally.”
Mr Abbott said that some of the growth would come from a new market area, namely the South Atlantic. Currently ACL does not cover this area in its schedule, but serves it through a slot swap with Hapag-Lloyd. Mr Abbott alluded to Charleston, Savannah and Jacksonville ports as being of interest, due to the presence of a large eastbound car market in the region, plus a big market for yachts and forest products.
“We want to add a South Atlantic port if we can squeeze it into the schedule, as it gives us a lot more geography and a whole new market,” he said. “In Europe we have the benefit of several Grimaldi services that we can use as feeders. We have some interesting transshipping prospects in Europe, but none in the US.”
Indeed, the arrival of the new ships could lead to a shake-up of ACL’s port calls. Mr Abbott said, “Every port is up in the air; nothing is sacred, at the moment.”
He explained that there were challenges to changing the schedule to include the ports in the South Atlantic. “There are constraints with all the ports. We would love to simply add a South Atlantic port and keep everything else the same but there is a lot of steaming time so there is no way that we can do that. We would have to drop something else, and so we are looking at the pros and cons of doing that.”
He expanded on the issues that ACL was considering and some of the obstacles it faced within its schedule: “We are nowhere close to saying what our schedule is going to look like. Göteborg has been in our schedule since day one, as we are a Swedish-registered company. But it takes a lot of steaming time to get there. We have a good market share there today but can we realistically double our business there as required by the new ships? That is a big question mark. Liverpool has been our home UK port for more than 20 years, but our new ships are too wide for the cut inside the locks. Liverpool will have to widen that cut to accommodate us or we will not be able to go there.”
He added that ACL was also considering Southampton or Bristol as UK calls, as both ports are served by parent company Grimaldi. Mr Abbott said that ACL had done a test call at Bristol earlier this year, which had worked quite well.
Expanding on the factors that he was weighing up, he said: “It is a hard decision, and each port has its pros and cons. Liverpool takes a lot of voyage time to go up and down again. Southampton has no deviation at all, but it is further from the north where we are strong. Yet it has good rail connections.”
He said that it would take some time to decide on the ports that ACL’s new vessels would call at. Despite the probability that the port rotation would change once the new ships arrive, Mr Abbott said that there was no question that the vessels would stay in the Atlantic.
The carrier expects to continue to work with its current slot swap partner, Hapag-Lloyd, when the G4s come into service. Mr Abbott said that ACL wanted to increase its swap amounts, so it was possible that Hapag-Lloyd might decide to involve the other carriers in the Grand Alliance. This would, however, be Hapag-Lloyd’s decision, he said.
Looking ahead, Mr Abbott was concerned about the prospects on the transatlantic. “I think it is going to be a horrible 2013, not just for the Atlantic but for the other main trades too. It was election year in 2012 in the US, and the politicians spent lots of tax dollars building roads, bridges and other infrastructure projects. Employment went up and people had more money to spend. This directly affected US imports and kept our ships full all year. But the elections are over and all those projects are coming to an end. We are already seeing a slow-down beginning. US export trade has been weak all year and Europe’s economy – apart from that of Germany – is simply stagnating.”
He summed up: “It is going to be a tough year ahead. Supply will clearly exceed demand unless somebody withdraws capacity.”
Looking back on 2012, he singled out over-capacity on the transatlantic as a major challenge. “It was booming at the start of 2012. It was a great start to the year. We were full in both directions. Then APL, HMM and MOL started their new service and a few other carriers boosted their services with bigger ships. From booming, the market went in the opposite direction, with freight rates dropping by 15-20 per cent in some areas.”
Looking ahead, he forecast that the transatlantic would again be characterised by overcapacity. “It will be the same in 2013 if the major lines do not change their historical stupidity of carrying boxes below cost, and adding services. If they continue to do this it will be a bloodbath.”
Explaining how ACL would ride out the difficult trade, Mr Abbott said that the carrier would be cost-conscious, but would ensure that its service stayed strong. One of ACL’s strong points was that the business was built on personal relationships, with the average member of staff staying 16 years. “While other carriers might cut personnel when times are bad, we will not do that. Our service is one of our strengths, and is even more important in a difficult time,” he explained.
Indeed, ACL prides itself on never out-sourcing its service. It ensures that ACL customer service representatives are available in each country that the shipping line deals with, so that they have the local knowledge required to help customers.
In the area of freight rates, ACL is following the industry pattern of signing a range of short, medium and long-term contracts. However, with rates so weak, shorter contracts are more the norm now. Mr Abbott commented: “When the rates do not cover all your costs, you cannot commit to them long-term.”
A major benefit for ACL is that it has a small market share, as this means that there is always enough cargo to ensure high utilisation. Indeed, even at the end of 2012, when the market was starting to weaken, Mr Abbott said that utilisation on ACL’s service was almost 100 per cent westbound and over 90 per cent eastbound.
Another of ACL’s strengths, through both good and bad market conditions, is the backing of its parent company Grimaldi. When it came to purchasing the new G4 vessels, Mr Abbott highlighted how the experience of its Italian owner was beneficial. “Grimaldi has tremendous technical expertise with its large fleet, so when it came to building the new ships, it was extremely helpful.”
He added: “It is a unique relationship. Usually when a company is bought, it is swallowed up and its identity disappears. Grimaldi does things differently.” According to Mr Abbott, this is because Grimaldi keeps the established brand names and focuses on synergies with the parent company. This means that ACL has all the benefits of being part of a large group, but is still able to operate independently.
The two companies also draw on economies of scale, to their advantage. ACL markets Grimaldi’s services in the US, and handles container logistics for Grimaldi in Europe, while taking advantage of Grimaldi’s purchasing management system, marine operations expertise and banking connections. Whenever ACL buys containers and fuel, and negotiates with ports and terminals, it does so as one part of the broader Grimaldi Group, in order to benefit from the larger group volumes.
The next few years promise to be an exciting time for ACL, and it seems that their new G4 vessels, once delivered, will not only provide the company with plenty of benefits, but will introduce some changes into ACL’s service strategy. CST
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