Saade: Diving rates mediaÆs fault; post-conference era to be chaotic
CMA CGM Chairman Jacques Saade has echoed the growing opinion that the current depressed ocean shipping freight rates have been dragged down due to industry perception of, rather than actual vessel overcapacity.
Saade on Monday told delegates at the Shipper Forum 2006 in Amsterdam that volume from Asia to North Europe and the Mediterranean increased by a combined 15.5 percent, equivalent to 11.5 million TEUs.
'Nevertheless, shippers, newspapers, magazines and the media in general have reported that ships ordered for delivery between 2006 and 2009 are much higher than the expected growth in Asia, and in China in particular,' he said.
'The ship owners started panicking. For no reason that was justified freight rates went down by end 2005, early 2006, by about 30 percent.
'By the third quarter 2006 ship owners looked back at their bookings and found that all their ships were almost full, averaging about 95 percent.'
Saade admitted that the 'fare reductions' will see many shipping lines registering losses for the year.
Looking forward, he said next year's cargo volume is expected to increase at the same rate as it has for the last two years. 'There is no reason to panic for 2007,' Saade said. 'It is my personal opinion that Chinese growth, closely followed by growing Indian exports, and in a second stage by Vietnam and other neighboring countries, will fully justify the orders of the new container vessels up until 2010,'
He added that industry-wide capacity estimates should be based on 95 percent of nominal vessel capacity because of the weight of the cargo that exceeds the average 10 tons per TEU, as well as laid-up ships and vessels due for scrap.
'Normally you read reports in newspapers that use nominal capacity and the volume and they say there is overcapacity. It is not correct.'
Saade is also president of carrier lobby group the European Liner Affairs Association that campaigned strongly against the repeal of liner conferences, a position that he will give up in the new year.
Following the decision last year of the European Commission to abolish conferences by late 2008, the ELAA has since put forward proposals for a revised system, including a trade association to collect and discuss data among other things (see http://www.elaa.net/documents/RevisedELAAProposal.pdf ).
The ESC, together with shipper groups from around the world and the EC, have rejected the proposals in their totality. 'One in isolation could be acceptable. All together not,' said Jean Louis Cambon, head of Michelin's ocean management committee.
'Shipping in general is very fragile. Contrary to all those who accuse the shipping lines of colluding: it is neither justified nor true,' Saade said.
'Indeed, ship owners need to fill their ships almost 100 percent to make profits and they trigger a rate reduction every time loadings go under the 90 percent level.
'We tried to explain to Brussels that a trade association to replace conferences of ship owners could meet in the presence of shippers from time to time. But should Brussels maintain its rigid position the shipping market would be chaotic leaving no guidelines and install uncertainty on market issues. I am sure shippers, as much as ship owners, will regret this chaotic situation,' Saade said.
He added that a direct consequence of a post-conference era without any replacement model will be a number of smaller shipping lines selling-up or going into liquidation as well as Europe losing its power base to Asia.
'This will lead to a market where the shipping lines will control the transport market and they will in turn dictate the rates. This is not what we hope for,' the CMA CGM chief aid.
Philip Damas, research director at London-based Drewry Shipping Consultants, agreed that the end of conferences will initially lead to a lack of stability, but that a dominant carrier will eventually emerge as the price leader.
Saade outlined that rates from North Europe to China range from $150 to $250 per TEU, less than some short inland rates in Europe, while coming back on the stronger leg, rates from Asia to Europe stand at $1,300 to $1,500 per TEU.
'We feel the rates are harsh. We believe that if we had better rates we would probably improve slightly our services,' Saade said.
Saade admitted that ship owners in the past have neglected open discussions with shippers on matters such as capacity and spoke of a joint committee with an open-book mentality as the way forward.
'The interest of the shipping industry and shippers is to sit together and talk, to exchange views and information to avoid extremes.
'We should develop, with shippers again, more trust, more exchange of needs, and do our best to improve services,' he said.
A number of shippers in attendance took Saade to his word and expressed their needs and expectations of ocean carriers. Chief among their desires was better quality service that could provide guaranteed sailing schedules, accurate documentation and invoicing, rather than just to compete on prices.
'We are confronted on a daily basis service delivery problems which are time consuming and not value-added,' said Filip Bekers, transport procurement manager at Masterfoods.
Bekers added that communicating with carriers on a global basis is very difficult, and that they have had little or no assistance from lines when trying to objectively measure service visibility and transparency.
'We are prepared to pay more for an optimum service. We already do pay a premium to those that help us achieve cost savings,' Bekers said.