Evergreen poised to strike?

Evergreen poised to strike?       Reports in early October suggested that Evergreen Line is eyeing a potential mega-order of container vessels.
      The shipping line's founder Chang Yung-fa confirmed in the Taiwanese and maritime press that his company is considering an order of about 100 vessels, though the date of the order is still to be evaluated.
      That Evergreen is interested in ordering ships shouldn't be too much of a shock. The Taiwan-based line is literally the only one among the world's top 20 to not have a single TEU of capacity on order. Additionally, the line has been one of the more active scrappers of tonnage in the current depressed market, effectively reducing the size of its fleet when the mantra in the industry has always been to grow, grow, grow.
      That strategy has worked pretty well for the line, as it is now in a position to negotiate a period of bargain-basement freight rates and falling revenue without the added burden of financing new ships (or the hassle of trying to delay the delivery of new ships).
      Call it tremendous foresight or luck, Evergreen is also now in a position to take advantage of shipyards that are desperate for business and likely to be cutting deals to keep their businesses afloat.
      If it is able to negotiate cut-price deals on new ships, then the time to strike is now. It could ostensibly structure deals with shipyards to finish ships on a slower than normal delivery schedule. That could allow them to take advantage of low prices, while not burdening the line with short-term capacity it does not need.
      Evergreen has said in the past that it will time its order to take advantage of a period when raw material prices (namely steel) are low, but there are other factors to consider.
      All of the many ships on order will be delivered at some point. And if the lines directly above and below Evergreen in the fleet capacity tables upgrade their fleets with larger, more fuel-efficient ships, then Evergreen needs to be in a position where it can effectively compete. Therefore, it may not be able to wait until steel prices reach a suitably low price level, and it may have to order ships on a timetable that allows it to keep up with the Maersks, MSCs, CMA CGMs and COSCOs of the world.
      Bear in mind, the largest vessels in the carrier's fleet today are its S-type 7,024-TEU ships. When volume rebounds between Asia and Europe, or on the transpacific, those ships won't provide the economies of scale that the biggest vessels in the fleets of Maersk, MSC and CMA CGM do.
      That's why I had to chuckle a bit when it was reported that Chang still wants to make Evergreen the largest shipping line in the world. Surely he knows that's impossible in the near future. The line has 575,000 TEUs of fleet capacity. Even if Evergreen added 100 10,000-TEU ships (or 1 million TEUs of capacity) and didn't scrap a single vessel, its fleet would still be 500,000 TEUs short of catching Maersk's capacity today. And the Danish giant has some 357,000 TEUs of capacity already on order.
      Rather than deal in wishful thinking, Chang should content himself in the knowledge that his company handled ship ordering in the last 10 years better than any other line, and that now he is in a very good position because of it.

SoCal ports stuck in their rut
      The ports of Long Beach and Los Angeles had been steadily improving in terms of container volume throughout 2009.
      That is to say, the year-on-year gap for monthly volume between 2008 and 2009 had been narrowing throughout the year. It was a sign many hoped meant that the nation's two biggest ports were on their way back to stability.
      Then came September.
      What was once known as the beginning of the peak season, this year September saw the first month-on-month drop in volume for Long Beach since February (traditionally the slowest month of any year) and only the second such drop for Los Angeles since February. By percentage, the decreases were 20.6 percent for Long Beach (to 440,000 TEUs) and 15.8 percent for Los Angeles (to 583,000 TEUs).
      The percentage drops were not all that different from those from the rest of the year, but September was supposed to be a month of consolidation for the world's key ports. Instead, the Southern California ports suffered another setback.
      The key question, as we discussed in this space before, is whether the demand downturn is bringing about a fundamental change in the way shippers route their goods. Five years ago, Long Beach and Los Angeles talked in terms of jointly handling 30 million TEUs some day. But their 2009 volumes are on a 2003-2004 level trajectory.
      Sort of how everyone invested in the stock market had to recalibrate their retirement savings this year due to the fall in share prices, the two Southern California ports will have to recalibrate what their eventual volume will be based on the shedding of volume the past two years ' not to mention the threat of other gateways siphoning off discretionary cargo.

Reducing capacity anti-competition?
      An interesting legal e-mail flitted across my inbox in October.
      The Netherlands Competition Authority said in a note on Oct. 15 that it was monitoring actions by 'inland shippers' that were jointly looking to cut excess dry bulk and container capacity.
      By 'shippers,' the authority is surely referring to carriers or transportation providers, rather than the shippers themselves. In any case, the warning is intriguing and could have widespread ramifications if other competition commissions deem it worthy of following.
      The implication is that by jointly reducing capacity, the carriers are adversely affecting the market rate for shippers and, hence, Dutch consumers.
      'Measures such as government aid, or restricting competition, even temporary restriction, may provide some relief from the crisis for suppliers, but will, in the short run, also have negative effects on the Dutch economy and, by extension, also on Dutch consumers,' said Pieter Kalbfleisch, chairman of the competition authority. 'The economic crisis is neither an excuse nor a license to enter cartel agreements.'
      On a global level, carriers are allowed to jointly rationalize capacity. In trades to Europe, carriers would argue that's all they're allowed to jointly do. And with the European Commission signing off on another five years of allowing alliances to do just that, this bit of news doesn't have an immediate effect on global carriers serving Europe.
      But it would set an interesting precedent for governments who have yet to develop stringent competition rules regarding transportation providers, and especially ocean carriers.