A sign of things to come?

A sign of things to come?    It took all of one month, but 2009 has its first victim.
      Senator Lines, the 21-year-old carrier that for the past 11 years has been majority-owned by Hanjin Shipping, said in early February that it could not carry on operating in the current depressed shipping environment.
      Rates were too low, capacity too high, and competition too fierce. The question now is whether Senator is the first in a line of dominoes, or a sacrificial lamb.
      It's easy to extrapolate one line's problems to others in the industry, but it's probably more instructive to delve specifically into what led to Senator's failure.
      As described in a Lloyd's List editorial after the German carrier announced it was ending operations, the carrier was founded as a result of a power struggle at the top ranks of Hapag-Lloyd. Senator Chief Executive Karl-Heinz Sager had been expecting to land the top job at Hapag-Lloyd, but didn't, so he decided to set up his own line instead.
      But Senator, according to the editorial, was never very profitable. When one of the major shareholders, German state-owned shipbuilder Bremer Vulkan, went bankrupt in 1996, it left a giant hole in Senator's finances. There's a reason why it needed the cash infusion that Hanjin brought when the Korean carrier bought 80 percent of the German line

Sager

.       Much of its fleet was chartered from Hanjin, so while times were good, it served as a perfect way for Hanjin to employ all its vessels. When times weren't so good, such as now, Senator couldn't keep up.
      Of the carrier's 14 services, only three were not run in conjunction with Hanjin ' one between Europe and the East Coast of South America and two with Hapag-Lloyd between the Mediterranean and Montreal. Hapag-Lloyd has indicated that it will continue that service, and Hanjin has indicated it will take up the service slots previously allotted to Senator when the German line officially closes at the end of February
.       This may be a boon to Hanjin, which could use those slots to boost its profile between Europe and South America, according to Francis Phillips of ComPairData.
      'Now Hanjin emerges as a new 'brand' in the Europe/ East Coast South America trade thanks to a long-term slot charter which Senator had, as Hanjin's European brand surrogate, with MSC,' he said.
      Now for the more widespread ramifications.
      Senator officials said the incredibly low rates between the Far East and Asia were the backbreaker ' most of its services where it had slots plied that route ' and it may not be alone in feeling that pain.
      It was 'unavoidable that a medium size carrier would fail in this incredibly tough market,' Philip Damas, division director at Drewry Supply Chain Advisors, told colleague Chris Dupin Feb. 4. 'I think there may be a couple of others before it stabilizes.'
      Are others on the edge? It's hard to keep track at this point
.       In an article in this issue about plummeting freight rates in the Far East/Europe trade (pages XX-XX), I broached the topic of why rates on that lane seem to be historically more volatile than on the transpacific.
      A number of issues are obviously at play, but one not mentioned in the story is national pride and how that affects home trades.
         On the transpacific, aside from a fractional amount of volume provided by Matson, virtually all the capacity comes from the Asian side (of course, European carriers provide service as well, but you can't characterize the transpacific as the 'home trade' of any European carrier).
      On the Far East/Europe, you have heavyweight Asian carriers fighting with heavyweight European carriers on a trade that can be defined as their home trades.
      The issue shouldn't be discounted. While the major Asian carriers are a mixture of state-owned and privately owned players, all enjoy firm backing from their governments. As I mentioned in a Comments & Letters item in American Shipper ('Maritime bailout,' November 2008, page 2), it would be tough to imagine, for example, the Singapore government allowing APL or the Chinese government allowing COSCO to fail.
      While the big carriers in Europe are all privately owned, there's a significant sense of national pride that supports each of them ' witness the Hamburg consortium and its unremitting drive to keep Hamburg S'd in German hands.
      This nationalism contributes to the butting of heads that eventually leads to market share grabs, which inevitably involves rate cutting. Those cutting the rates feel they can weed out the least fit when things recover
.       Hanjin's decision to shutter Senator may only be the beginning of a drawn out game of chess.

Take the long way home
      In homage to Slumdog Millionaire, here's a trivia question:
      Sailing around the tip of Africa makes sense for carriers because:
      A) Bunker costs are low.
      B) Asia-Europe rates are so low that they don't justify the cost of Suez Canal transit tolls.
      C) Adding days to Asia/Europe services allows carriers to utilize ships that ordinarily would be idled.
      D) To avoid pirates.
      Actually all the answers are probably correct. There are now two carrier groupings that are sailing the long way around, something that may be making the Suez Canal Authority revisit their recent decision not to lower tolls in the face of falling demand for Asian-made goods in Europe.
      Sailing around the Cape of Good Hope may seem like a backwards step in the evolution of ocean transport, but it actually represents some pretty nifty thinking by carriers. As evidenced above, it solves, or at least tempers, a handful of problems for carriers.
      Most notably, with Suez Canal transit costs as much as $700,000 for the world's largest containerships, sailing around the Cape saves carriers a pretty good chunk of change.
      But it's not that great for shippers. It no doubt lengthens transit times, and so you probably won't see it used on, say, an express service from the Subcontinent to the Mediterranean or U.S. East Coast. Of course, with freight rates as low as they are, how much can shippers ask for these days?