Big ships and hubs

   In late August, two influential shipping voices independently conveyed a similar idea to American Shipper: that vessels transiting the widened Panama Canal to serve U.S. East Coast ports would want to avoid transshipment.
   “If you take your big-ship economics and wipe it out with transshipment you haven’t accomplished anything,” Jim Newsome president and chief executive officer of the South Carolina State Ports Authority and a former liner executive with Hapag-Lloyd, told American Shipper in a conference call. “You don’t want to blunt big-ship economics by spending money on transshipment.”
   A day later, Rodolphe Saadé, executive officer of CMA CGM, told American Shipper Associate Editor Chris Dupin much the same thing.
   “We believe the U.S. market is a very sensitive market — sensitive to transit time and service quality,” he said. “I don’t believe we will be serving the U.S. with transshipment.”
   The idea that transshipment is something to be avoided at all costs doesn’t necessarily jive with how some of the top container lines are setting up global hub and spoke networks, including in the Caribbean, Central America and the North Coast of South America.
   CMA CGM is itself investing heavily in an expansion of its Caribbean hub in Kingston.
   But in this case, the issues are clear. There’s more to lose stopping in the Caribbean or the North Coast of South America on the way from Asia to the U.S. East Coast than there is to gain. In this regard, Saadé’s comment is particularly salient.
   Yet a question remains over the inevitable development of larger ships entering the transpacific trade, some of which will necessarily be put into service on all-water loops. Will carriers have enough cargo to fill 8,000- to 9,200-TEU vessels on direct services with little or no aid from transshipment?
   A while back, Jonathan Beard, a Hong Kong-based port consultant, postulated that the big ships now in service on the Asia/Europe trade would ideally make five or six “bus stop” calls. The calls would come at large origin or destination points and at major transshipment hubs in between. The fewer number of calls would expedite transit times, and allow maximum opportunity to fill the ships from cross-trades.
   Remember, we’re talking about filling scores of 14,000- to 18,000-TEU ships within two years. That’s why a hub-filled rotation makes perfect sense from Asia to Europe.
   That trade has a chance to focus on a diverse set of economies that aren’t so interdependent, like the Middle East, West Africa, and Black Sea.
   As Daewoo Shipbuilding & Marine Engineering Co. CEO Nam Sang Tae put it to Businessweek in late August: “Large ships will help ship owners reduce costs, creating a new segment that may be less influenced by how the world economy performs.”
   Tae’s company is building Maersk Line’s set of 20 18,000-TEU ships due for delivery in 2013 and 2014, which will be deployed on the Asia/Europe trade.
   But the transpacific is so very different. The average vessel size plying the trade from the Far East to the East Coast of North America was 5,200 TEUs in August, 4 percent larger than 12 months prior, according to the maritime consultant Dynamar. Note the average size is actually larger than the nominal 5,000-TEU capacity of the existing Panama Canal locks. That’s due to a handful of loops that transit via the Suez Canal using vessels of 8,000-TEUs or larger.
   As Saadé said, transit times are king on trades to North America. Ships, while getting larger, will never reach the size deployed in Asia/Europe due to infrastructure and productivity constraints in North America. So there’s less space to fill, and a mandate to get cargo to its unloading point as quickly as possible.
   This strategic divide shows how it won’t be an easy thing for carriers to maximize the economic scale of the big ships on order. There’s no one answer to the question: will transshipment impact the unit cost benefits of larger containerships. Each trade is unique.
   That there are already loops using post-Panamax vessels on the trade suggests demand is already there. But if a couple dozen more vessels of that size enter the trade, will the demand be there?
   As those larger vessels cascade into the transpacific all-water trade, lines will likely have to use them as they have used previous, smaller vessels. That is to say, on direct runs, only transshipping in Panama. At least that’s what the experts are indicating.


Rated TSA
   The Transpacific Stabilization Agreement has added to the thicket of rate indexes on offer to the industry.
   The discussion agreement, whose 15 members control the lion’s share of the trade, in August unveiled an index showing transpacific revenue levels in June hit a 13- to 14-month low. The TSA said its index, culled from actual per FEU revenue data from 80 percent of its members, portrays a truer picture of the rate environment than the host of third-party indexes available.
   “Some are based on specific rates provided by a sampling of carriers that do not necessarily reflect the entire eastbound transpacific market,” the TSA said. “Others are based on ‘spot’ rates between select, high-volume port pairs which fail to include any ancillary charges and are not necessarily reflective of negotiated longer-term contract rates under which the vast majority of cargo in the trade moves.”
   The goal of the TSA’s index is laudable, as it’s meant to underlie longer-term ocean freight agreements (something this column has argued for on numerous occasions). The index doesn’t stipulate rates in terms of dollars, but rather as a number against a benchmark of 100 from June 2008. If the index is above 100, then rates were better than they were in June 2008.
   The index also includes contract and spot rates, though it doesn’t provide detail about how much volume is moving within those two categories. In essence, it can be viewed as an investor views the S&P 500 — a good indicator, but not necessarily relevant to any one stock, or in this case, ocean freight agreement.
   It will come under inevitable criticism from shippers. The declining numbers were released just ahead of a peak season in which carriers have struggled to make peak season surcharges and rate increases stick. And there’s only input from TSA members, who obviously have a vested interest in seeing rate levels increase.
   But quibbles aside, it’s commendable to see carriers take control of a situation. Instead of lamenting the impact of third-party rate indexes and the resulting derivative markets, transpacific lines have shown a willingness to provide a contextual snapshot of their monthly revenue, and a mechanism upon which to build long-term contracts.