Containers, more than ships, a concern in transpacific

Containers, more than ships, a concern in transpacific    Y.M. Kim, president and chief executive officer of Hanjin Shipping Co. who serves as chairman of the Trans-Pacific Stabilization Agreement, said Monday he does not believe there will be any sustained overcapacity situation in the transpacific trade this year.
   “We are at a tipping point for more sustainable U.S. economic growth and job creation. Things are not as bad as you might think otherwise,” Kim said at the 11th annual Trans-Pacific Maritime Conference in Long Beach.
   World shipping capacity is expected to increase 8.9 percent globally, largely from the introduction of ships with capacities topping 8,000 TEUs.
   “The carriers will not automatically put all new big vessels into the two key east/west trades,” the Asia/Europe and transpacific, he said. Instead some new ships and big ships being cascaded out of the Asia/Europe trade are likely to be deployed in the Far East/Middle East, intra-Asia and Asia/South America trade lanes, as well.

Kim

   Kim made his remarks at this conference, which attracted more than 1,700 participants, including many carriers and shippers beginning to negotiate annual contract that expire in May.
   In recent weeks spot rates for transpacific container shipping have been falling.
   Kim noted that container capacity is likely to remain tight in the coming year as factories in China that make the containers have been unable to reemploy all they labor they used to have.
   Tan Hua Joo, an executive consultant for research firm Alphaliner, said while container production is expected to increase from 2.5 million in 2010 to 3.5 million in 2011, prices have skyrocketed to $3,000 for a 20-foot box, a price that he said has not been seen in 25 years.
   He did not believe eastbound shippers will feel the brunt of any container shortage but westbound shippers, U.S. exporters, need to “seriously consider what the impact of this container shortage will be.”
   Alphaliner said there is about a 14 percent annualized increase in transpacific capacity in 2011 compared to 2010, but that peak to peak, capacity will be up 9 percent (See 'Box crunch likely to resurface '.
   “For shippers who are concerned about a shortage of space, I think you should feel somewhat confident that carriers have already put in place plans for the additions of new services,” he said. Alphaliner has identified at least six new services that will be launched, and there could be eight to 10 new strings between the Far East and the U.S. East and West coasts in the coming year.

Tung

   C.C. Tung, chairman and CEO of Orient Overseas (International) Ltd., parent company of container carrier OOCL, said in the Journal of Commerce-sponsored conference’s keynote address that shipping lines should be allowed to continue to share information among themselves.
   Referencing projections that the world fleet will grow just under 9 percent in both 2011 and 2012, and that 0.2 percent of the world fleet is idle, Tung said the industry is “not out of the woods yet, and the only way we can have a clear view of the future is to increase our information exchange on key industry issues.'
   Tung said from August to December of 2010, the container-shipping industry moved from having a shortage of space on their ships to only an 80 percent load factor, accompanied by a 20 percent drop in freight rates in the Asia-to-Europe trade.
   He called such a swing unsustainable and said carriers should be allowed to talk and exchange information on macro demand and other industry issues.
   Changes in European shipping regulation in 2008 have prohibited information exchange and are 'a step backwards in time,' and threaten the stability of the shipping industry and world trade, he said.
   Since 2008 the standard deviation in freight rates in the Asia/Europe westbound trade has been 153 percent more than in the transpacific, he said, compared to just 22 percent before 2008 when the European Union ended its block exemption for liner shipping conferences and reduced information sharing among carriers.
   'The industry needs to brainstorm more of these issues and share information on how to proceed. To be clear, this would not involve a return to the conference system of old. Rather we need to be able to discuss this issue in an open and transparent forum, working with government when necessary,' he said.
   Tung's remarks seemed not only aimed at European regulators, but also a response to calls for an end to U.S. antitrust immunity that reached a crescendo with the introduction last fall of a bill by former Congressman James Oberstar to eliminate antitrust immunity for ocean carrier agreements.
   Noting that because capital costs in the container industry on a per-slot basis have come down at the same time that operating costs have increased, Tung said, 'perhaps there is a need to move away from the historical asset management approach that the liner company has taken to managing its business.'
   He said such an approach, with an emphasis on maximizing load factor and gaining market share, has contributed to price volatility which he says only provide short term benefit to shippers and their customers and 'threatens orderly supply of capacity.' ' Chris Dupin