South East Shipping News

Geopolitics of liner mergers

 

What is the future of container shipping? Will industry consolidation continue and, if so, who will still exist in 2020? All highly relevant questions constituting a fairly amusing – yet nerdy – game at supply chain conferences. This often comes with the predictable disclaimer: nobody really knows. However, there are three “facts” that make predicting the future of the container shipping industry relatively easy. One wild card remains.

1. More consolidation is “needed”
Almost all businesses in the logistics chain are currently suffering from the effects of consolidation in container shipping: shippers deplore the decline of service frequency, ports the loss of calls and terminals the stress of larger peaks. Yet, within the current business model, consolidation might be needed for the container shipping industry to be profitable: they need size to finance and fill bigger ships. In the coming years an impressive amount of new mega-ships will come into operation. Along with the predictable awe, this will bring even more overcapacity to a sector that has so far only been able to survive this by laying up vessels and scrapping ships that would normally be considering too young to demolish. So predicting more mergers is a pretty safe bet. Since 2014 we have witnessed frantic merger activity resulting in rapid disappearance of smaller carriers. There are still a few left that look vulnerable and might have only one choice: be eaten or to continue as regional niche player. By 2020 there will be no more than six global carriers with comprehensive networks.

2. COSCO will not stop until it is the biggest
It has been a spectacular runner-up: ranked sixth largest just two years ago, it is now the fourth largest global container carrier – and would enter the top 3 if the merger with OOCL goes ahead. Its ascendance will likely not stop there. As a state-owned company, COSCO has a logic that is not only commercial, but also geopolitical, maybe even predominantly so. China wants to secure its supply chains and strengthen its naval presence: dominating in container shipping can help achieve this. This has underpinned the merger of COSCO and China Shipping, their recent attempts to acquire other medium-sized carriers and the Chinese terminal shopping spree all over the world.

3. For the EU, “champions” trump competition
Which means: consolidation is fine especially as it has benefited European carriers. This has not been admitted as such, but can be deducted from its behaviour with respect to the proposed P3-alliance and the recent merger of Maersk and Hamburg Sud. P3 would have forged an alliance of the three largest global container carriers: Maersk, MSC and CMA CGM- all European – in a way that would have transformed the classical vessel sharing agreement into a more strategic form of cooperation. The European Commission signalled it would accept this, but the Chinese authorities did not give regulatory approval, officially because it would distort competition and quite likely also for geopolitical reasons: namely to avoid the emergence of a European champion. More recently, the European Commission also accepted the merger of market leader Maersk and Hamburg Sud, under certain conditions. These precedents will limit the possibilities of the Commission to stop mergers that it likes much less, e.g. COSCO taking over a European carrier. This means – paradoxically – that the EU will have difficulties to effectively play the card of competition policy against China: it will have to allow the same degree of concentration for Chinese carriers that it apparently finds reasonable for European carriers.

How will the game unfold?
The few smaller global carriers that remain are from Hong Kong (OOCL) and Taiwan (Evergreen and Yang Ming). COSCO has the best cards to buy all three. Maybe the most important reason is geopolitical. The Chinese will simply not accept that a European competitor would dare to buy up a shipping firm from their “backyard”. So this is very unlikely to happen. Moreover, COSCO is already cooperating with OOCL and Evergreen in the Ocean Alliance.

The crucial question seems to me what is going to happen to CMA CGM. It entered the Ocean Alliance as the dominant player, but might become junior partner if COSCO manages to take over OOCL and Evergreen. Moreover, COSCO apparently has shown interest in buying shares of CMA CGM. Provided that the acquisitions of OOCL and Evergreen work out, buying only part of CMA CGM (say 24%) would help pushing COSCO beyond the reach of Maersk and make it world’s largest carrier. Additional advantage for the Chinese state: via the minority position in CMA CGM they would acquire a de facto majority in Terminal Link, the terminal operator owned for 51% by CMA CGM and for 49% by China Merchants Holding, another Chinese state-owned company. And who can exclude the possibility that COSCO Ports and China Merchants port terminals will merge one day?

Wild card
Over the coming months the Chinese will no doubt test the resolve of the French to block sales of CMA CGM shares to China. The French state might even consider to buy shares in CMA CGM to pre-empt the Chinese from doing so, which might be a logical consequence of the French discussion this year on what constitutes a strategic merchant fleet. However, one could wonder if this is a sustainable long-term solution. Given the recent re-emergence of the French-German axis and the growing assertiveness in Europe vis-à-vis China, another solution might make political sense. A joint French-German carrier, partly state-owned, with potential network complementarities would not only be a powerful expression of that new political reality, but also suddenly become world’s largest carrier. For this to happen, the French president would – for a start – need to go to Hamburg…

What the POMTOC and South Florida Container Terminal deal is likely to mean

Better together: There is a logic behind terminals looking to work together in order to cope with bigger volumes It's high time that terminals followed lines and ports and get in on the partnerships act finds Felicity Landon The US Federal Maritime Commission's decision allowing two Miami terminal operators 'to seek cooperation and commonality in both business and operating matters' certainly caused a stir. Does it pave the way for other terminals to seek close partnerships? Is it the turn of terminal operators to set up alliances that match up to the oversize alliances of their customers? And are they really free to go ahead? The FMC gave its blessing for the Miami Marine Terminal Conference Agreement to take effect, allowing the South Florida Container Terminal Port of Miami Terminal Operating Company (POMTOC) to establish 'a variety of common rates, rules and practices, as well as to meet to discuss these matters'. It also went as far as suggesting that this agreement could form a template for terminal alliances to create framework service agreements with shipping line alliances. Miami is the first high-profile example and every case will be different, says Neil Davidson, Drewry's senior analyst - ports & terminals. However, he adds: “The FMC are normally pretty cautious in terms of allowing parties to work together, and don't give their permission lightly. The fact that they also made a very general statement that they expect to see more terminals doing this is quite an interesting comment from the regulatory side. Having said that, the EU has its own set of rules and ways of weighing this up, of course.” Reducing fragmentation of capacity is necessary in order to handle volumes that are so much bigger than they were, says Mr Davidson. There is a logic behind terminals looking to work together in order to cope with what is being thrown at them by their customers, he says - and there is scope for alliances to happen, but there are operational and regulatory challenges, and risks attached to such a partnership. “Because of the peaks and pressures created by the bigger ships in port, the natural reaction might be to say I should work with my next-door-neighbour terminal rather than against him, to join forces for practical reasons and commercial reasons - the client has got bigger and more powerful, therefore I need to do the same. “There are lots of sensible operational reasons for doing that, which would also benefit the shipping lines. But the dilemma is that the regulatory authorities would always be in the background - perhaps saying you are colluding or you are a cartel or too close together. So the formation of more terminal alliances is dependent to an extent on the competition in the port or with neighbouring ports, and on the attitude of the authorities towards competition.” Talking practicalities The other issue to consider, says Mr Davidson, is how it works in practice. “Yes, you can sign the document to say you will work together with your neighbouring terminal - but to really make it work, you may need to buy or merge, in order to bring in the same rules in terms of strategy, profitability and shareholding, and have a completely uniform approach. “Shipping lines can have alliances because they will have similar capacity vessels and share schedules and rotations. However one terminal in a port could be very different from another, so it is not aligning like with like. The chances are the one of the two terminals just isn't as good as the other one, so you would always have a weaker terminal of the two which is difficult to overcome. The proliferation of mega container ships means massive surges of containers when they do call. A terminal alliance might sound like the answer - but Mr Davidson points out: “The alliance idea doesn't address the fact that usually everyone in the port has the same peaks. So even if you work together, you are still suffering the same peaks.” It is difficult for terminals to form successful working alliances if they are not immediately next door to each other, he points out. “If you share a quay line, you can cooperate more easily. If you are across the bay from each other, it is much harder.” In the case of the Miami partnership, the two terminals are, as pointed out by the FMC, in close proximity to each other. “The alternative is what you see in Los Angeles/Long Beach, where the volumes of an alliance get spread over numerous terminals and there are lots of inter-terminal transfers. Clearly it would be better to merge neighbouring terminals so you don't need to split the volumes so much. In Asian ports perhaps there is more port authority ability to make these things happen but in North America and Europe, where private operators are more independent in their outlook, it is more difficult for the authorities.” Space premium Despite recent expansions, true deepwater capacity for vessels of 18,000 teu and above is still at a premium in Northern Europe, says Andrew Penfold, director - global maritime at WSP Parsons Brinckerhoff. “At first you think the (liner) consolidation means the common user terminal operators are scrapping around for business - but not really. The point should be made that the mergers and consolidation situation in the shipping lines certainly wasn't driven by wanting to cut bunker prices or handling prices - it was driven by their own self-inflicted problems of overcapacity. The question of which port choice or which terminal you use has been almost an afterthought and is only now receiving the attention it needs.” The challenges of handling the volumes of alliance partners are emerging in the developing world too, he says. Again, terminals will struggle to handle the sheer volumes involved; there are already instances where the demands of the big caller are so huge that the terminal operator has to push out the smaller shipping lines. “That provides an opportunity for smaller terminal operators to get in. “Economies of scale? Yes, on the water, driven by the shipping lines' problems. But with the higher consignment size to push through the terminal, generally speaking you hit the point when the efficiency of the terminal starts to decline. I think there will be some scope for more terminals to work together in response to their customers' consolidation - but they don't need to do that - at the moment the terminal operators aren't in distress from all of this.” The Port of Long Beach has been addressing congestion caused by ever-long dwell times of containers across terminals. Michael Christensen, senior executive lead, supply chain optimisation, points out that while there is so much opportunity for ocean carrier alliances to use multiple terminals, once one terminal gets congested and a vessel switches to another, the congestion moves among terminals and spreads through a port very quickly. “Terminals are so interlinked these days,” he says. “When we had a big labour-driven congestion problem two years ago, there was an interesting metric we noted; any time a terminal reached about 80% of capacity, the fluidity of the terminal and efficiency of the operation degraded very quickly.” ALLURE OF BETTER BARGAINING POWER Will the creation of alliances give terminals better bargaining power when dealing with their ever stronger and larger customers? WSP Parsons Brinckerhoff's Andrew Penfold says despite expectations, terminal operators have seen only a marginal impact on prices for handling containers, and most are not 'in distress'. "If you take the volume of containers that CMA CGM would be wishing to handle with their partners and associates, it becomes quite difficult to put that all in one terminal - even Rotterdam World Gateway with its capacity will be sorely tested to handle all the demand. So you have a situation whereby the new alliances will have to make some sort of deal involving one or more other terminals. So while Maersk will be putting all its business through APM in the Maasvlakte, it is quite likely they will have overflow cargo that may have to be placed elsewhere.” A large shipping line serving Northern Europe will have a certain amount of business that must go into Antwerp and into Rotterdam, says Mr Penfold - it is the 'debatable' business that could be switched into either that is where the real questions are. “In response to that, the stevedores have continuously added new features and new value-added - for example, barge terminals, investment in intermodal trains. The independent terminal operator is in a better position to make this kind of investment than a shipping line owned terminal would be, because of the money available.” It might be good for the shipping line to play one terminal off against another in order to secure the lowest possible price, but it isn't good for the shipping lines if they create a situation where none of the terminals can meet their needs, adds Drewry's Neil Davidson. “If none of the terminals has the capacity or ability to cope with the surges and associated challenges, then having a choice means nothing.” - See more at: http://www.portstrategy.com/news101/port-operations/planning-and-design/finding-allies#sthash.yJx0u3Jk.dpuf

Two out of three Miami terminals seek alliance to negotiate with container lines

Reynolds Hutchins, Associate Editor | Dec 08, 2016 3:54PM EST
Additional reporting Rick Eyerdam

An agreement between the South Florida Container Terminal and Port of Miami Terminal Operating Company could be the first of many at US ports.

WASHINGTON — US regulators are reviewing a proposed agreement between two marine terminal operators at the Port of Miami that would allow the terminals to jointly negotiate terms and conditions with container lines — a first for the United States.

Although the port of Seattle and Tacoma came together operationally as the Northwest Seaport Alliance in 2015, this is the first time two marine terminals have sought the Federal Maritime Commission’s blessing to create their own alliance. Miami’s South Florida Container Terminal and Port of Miami Terminal Operating Company want to jointly negotiate, set, and approve terminal rates, charges, rules, and regulations, and rates of return between the terminals.

South Florida Container Terminal is an APM terminal, in essence, with the added benefit of a common user terminal designation. POMTOC was PortMiami’s only common user terminal until the port made all three terminals common user, including the Sealand Terminal.

But as Maersk withdrew from its APM terminals and sold interests in them, the benefit of Maersk’s exclusive calls at it’s terminals was displaced by a need for greater warf space and increased need for limited SuperpostPanamax cranes. Rather than compete for the limited resources at PortMiami and drive down costs in the competition the two adjacent terminals decided it would be easier to collaborate.

The terminals’ request parallels the vessel-sharing agreements container lines have formed to pool their cargo in larger ships in order to mitigate overcapacity and broaden their networks. Through the alliances, the container lines still compete with fellow members, and are forbidden from jointly marketing, selling, or contracting with third-parties, such as tug operators and stevedores.

According to FMC Commissioner William Doyle, agreements such as that in Miami are a direct response to the Ocean Alliance, a VSA between China Cosco Lines, Evergreen Line, CMA CGM, and Orient Overseas Container Line set to take sail in April.

The Miami terminals did not respond to requests for comment from JOC.com.

“Since the Ocean Alliance is allowed to jointly negotiate as an alliance with marine terminals who agree to do so, some marine terminal operators and port authorities may want to explore options for entering into their own alliances where they could jointly negotiate terms and conditions with the ocean carriers,” Doyle said at a North Atlantic Port Association meeting outside of Washington, DC. last week.

FMC commissioners say they have also been approached by others, including the South Carolina Ports Authority, regarding a potential partnership with another Southeast port operator.

“We’re absolutely going to have more agreements,” FMC Chairman Mario Cordero told JOC.com this week.

Doyle said the Miami terminals’ discussion agreement is a step beyond that of the Northwest Seaport Alliance, which gained the FMC’s green light in July 2015, because it will also allow those terminals to jointly negotiate terms and conditions for services with the ocean carriers.

Language in the proposed agreement includes conference and rate-setting authority that would allow the terminals to discuss and agree on matters of rates, charges, rules, and regulations through joint or individual marine terminal operator agreements with ocean common carriers. Additionally, the proposal would authorize the terminals to meet individually or as a group with one or more users, including ocean common carriers, to discuss any matters related to rates, charges, rules, and regulations.

The agreement appears to allow the terminals to jointly meet with a group of ocean common carriers, like an alliance grouping, and come to a joint agreement for services, Doyle said.

The draft agreement submitted on Nov. 16 is still under review, but has received some positive feedback from the likes of Doyle and Cordero. As with vessel-sharing agreements and the agreement for the Northwest Seaport Alliance, the FMC is expected to publish the language of the agreement for a public comment period. The FMC will then have 45 days to request additional information before making a decision.

“At the end of the day, you can’t have major ports in the same region independently trying to address issues in the supply chain,” Cordero said. “This agreement allows the FMC to monitor this in such a way that it doesn’t border collusion or anticompetitive behavior.”

Contact Reynolds Hutchins at [email protected] and follow him on Twitter: @Hutchins_JOC.

Maersk Line to acquire Hamburg Süd in cash deal worth up to $5bn

According to vesselsvalue.com, Hamburg Süd’s fleet of 44 vessels, all operating north-south services in the Latin America market, is valued at $1.44bn.

By Mike Wackett 01/12/2016
Maersk Line today announced it is to acquire Hamburg Süd in a cash deal one analyst claims could be worth up to $5bn.

“We estimate the takeover price in a range from $3bn-$5bn, which would increase Maersk’s leverage from 1.2x to around 1.6x full year 2017 EBITDA,” said Jeffries in a research note.

Maersk’s acquisition of the world’s seventh-biggest carrier would lift its capacity to 3.8m teu, from its current 3.1m teu, giving it an 18.6% global share.

The financial implications are harder to gauge, given the highly secretive nature of Hamburg Süd as part of Germany’s private Oetker Group.

“Profitability of Hamburg Süd hasn’t been disclosed, but we suspect it is depressed in the low container freight rate environment,” Jeffries said.

“As a result, the takeover would only create value if profitability would recover, through a combination of significant cost synergies and a potential recovery of container freight rates,” added the analyst.

The deal, following a recent wave of industry consolidation, will leave only 13 global carriers, compared with 20 at the start of the year.

According to vesselsvalue.com, Hamburg Süd’s fleet of 44 vessels, all operating north-south services in the Latin America market, is valued at $1.44bn.

The carrier recently made a foray into the east-west trades, but Maersk Group chief executive Soren Skou said today that “no decision had been made” on whether these services would continue after the completion of the acquisition of the German carrier at the end of next year.

Mr Skou told The Loadstar this morning that the “strong Hamburg Süd, Alianca and CCNI brands” would be maintained in Latin America, subject to regulatory approval, and that the east-west business “would fall within the 2M [alliance]”.

According to Alphaliner, Hamburg Süd purchases more than 2,000 slots a week from UASC, Cosco and APL as part of its global liner service offering on the Asia-Europe, transpacific and transatlantic trades.

These slot-charter agreements are set to end next April with the formation of the new vessel-sharing alliance structure, and it is difficult to see how Hamburg Süd could maintain its east-west market.

“Hamburg Süd is a very well-run and highly respected company with strong brands, dedicated employees and loyal customers,” said Mr Skou. “It complements Maersk Line, and together we can offer our customers the best of two worlds, first of all in the north-south trades.”

Chairman of Hamburg Süd Group, Dr Ottmar Gast, said the decision to “divest its engagement in shipping”, which can be traced back for 80-years, “was not an easy decision for my family”.

A separate statement from Oetker Group said continuing “active participation” in the shipping sector “would entail an even higher capital requirement”, which would “make the balancing of risk within the Oetker Group business portfolio more cumbersome”.

It added that in its view Maersk was “the ideal partner to preserve and further develop the shipping company’s successful business model”.

Mr Skou confirmed that the Hamburg Süd head office in Hamburg would be maintained, although he did not elaborate on integration of offices around the world, or the carrier’s 6,000-strong workforce, other than to pledge a “light touch”.

Mr Skou also hoped for synergies for Maersk’s terminal operation, APM Terminals, from the takeover.

He refused to be drawn on the acquisition price, other than to confirm that it was an “entirely cash transaction” with “no need to sell assets”.

Subject to obtaining regulatory approval from China, South Korea, Australia, Brazil, the US and the EU etc – a process expected to last until the latter part of next year, Maersk hopes to close the transaction by year-end 2017.

Product tankers, tramp, and other shipping-related operations made up around 7% of Hamburg Süd’s $6.7bn revenue in 2015. Mr Skou said there were “no plans for them as yet”. It is assumed they will be disposed of shortly after the takeover.

With Panama Canal open CMA CGM will advance Kingston hub

A statement from CMA CGM said: “Reflecting on new possibilities, maritime companies can rethink their routes, including that from Asia to the US east coast. For example, on the journey between New York and Hong Kong, the choice to sail by Panama or Suez canal is subtle: there is just one day difference. “Until now, the canal dimensions limited the size of ships and impacted the region’s technological and commercial strategies. With the lifting of such constraints the evolution of vessels is probable, initially from 5,000 to 9,000 or to 10,000 teu or even larger. The traffic is not likely to rise, but volumes in transit will probably increase.” The line added it would now look to develop the Jamaican port of Kingston as its central hub in the region. Last year it signed a $509m deal worth with Port Authority of Jamaica that transferred ownership of its container terminals to CMA CGM on a 30-year build-operate-transfer model. This will see the terminal expanded in two phases, with capacity taken successively up to 3.2m teu and 3.6m teu, and the port’s draught deepened to 14.2 metres by the end of 2016, and then to 15.5 metres. CMA CGM has formed a special purpose vehicle to bid for the project – Kingston Freeport Terminal – comprising its remaining port business, CMA Terminals, and Terminal Link, its container terminal operating company in which China Merchants has a 49% stake. Luc Portier, CMA CGM’s director of studies, projects and development, said: “A widened canal will bring new opportunities for world trade. CMA CGM has foreseen these changes and made Kingston a strategic base: modernisation works will allow the group to operate all larger vessels sailing in the area, and make Jamaica a transhipment hub for the whole sub region.”

Crowley focuses LCL shipments to Caribbean at Houston

HOUSTON, Texas - Crowley Maritime Corporation announced today that it will begin offering weekly, fixed-day, less-than-container-load (LCL) shipping services from Houston to 33 port destinations throughout the Caribbean Basin on July 1. The new logistics service will be the only one of its kind available from the Houston gateway. This new offering is designed to further enhance supply chain options for those shipping directly into the Caribbean Basin from the West and Gulf Coasts of the U.S. “Customers will be able to drop their cargo in Houston, and with our weekly, fixed-day service, have their cargo landed virtually anywhere within the eastern and western Caribbean, and Central America,” said Mike Griglione, Crowley’s general manager of logistics in Houston. “This is just another way we are adding value to our customers’ supply chains by both increasing the velocity of those supply chains with our integrated services and reducing their total landed cost.” “No other logistics company is providing a weekly, fixed-day, LCL service like this to the Caribbean Basin from Houston,” said Ken Black, Crowley’s general manager of logistics in Miami, adding that it is just one facet to a comprehensive suite of logistics services being provided by Crowley in Houston. In addition to LCL transportation, Crowley also offers custom packing options, cargo consolidation and deconsolidation, warehousing, distribution, cross-docking, freight forwarding, import/export documentation, last-mile delivery, cargo insurance and customs brokerage services for cargo of all types and sizes. LCL cargo shipments from Houston should be booked by calling 1-800-CROWLEY, and the cargo should be consigned to Crowley Logistics, Inc. c/o Customer Name, Destination Country; 15894 Diplomatic Plaza Dr., Houston, Texas 77032. Weekly cargo cutoff is noon every Thursday to ensure prompt departure and delivery to destination.

Bye bye fax machine

When Ports Finally Ditch Fax Machines, Cargotec Plans to Profit By: Niclas Rolander | Jun 23 2016 at 03:10 AM | Ports & Terminals Finland’s Cargotec Oyj is vying for new contracts later this year to modernize ports as the equipment supplier to maritime hubs from London to Los Angeles promotes technologies rendering fax machines and even workers redundant. Cargotec is aiming to ride a wave of investment in digital communication and automation set to transform maritime trade and boost its own profits, Chief Executive Officer Mika Vehvilainen said in an interview. After joining the company from flag carrier Finnair Oyj in 2013, he said he was shocked by the rudimentary state of technology for exchanges between ports and giant cargo ships. “It’s surprisingly old-fashioned,” he said at the company’s headquarters in Helsinki. “In many cases these people are actually sending faxes to each other, or making phone calls, and they only share the information a few hours before docking.” Battered Confidence The Finnish company, which had sales last year of 3.7 billion euros ($4.2 billion), is seeking to expand further in services and software from its traditional businesses of making cargo handling equipment like cranes and forklifts. Carved out of elevator manufacturer Kone Oyj in 2005 and built up through acquisitions, Cargotec is also trying to win back investor confidence battered by past profit warnings. With just a tiny proportion of global ports now equipped with some form of automation, it expects that market to be worth almost 1.5 billion euros annually in the coming years. “We are talking to about 70 ports about automation capabilities,” Vehvilainen said. “Ultimately, all container ports in the world will be automated.” Cargotec’s port-equipment unit, Kalmar, has already taken part in about half of these types of projects in the world, and Vehvilainen expects to sign “a few” more deals in the second half of this year. For an industry that hasn’t always greeted change with open arms, the switch is slow-moving, he said. Globally, around 5 percent of the estimated 680 container terminals in operation are at least semi-automated, with around 10 new automated ones in the pipeline, according to consultancy Drewry Maritime Research. Tipping Point “The tipping point has been reached,” Daniel Schäfer, a market analyst at DS Research, said in a phone interview. The biggest container terminal operators like APM Terminals, DP World and PSA have now automated some installations, which are working reliably, so a “second wave” is expected, he said. For its part, Cargotec’s Kalmar supplied software-controlled machinery for container terminals like London Gateway port on the north bank of the River Thames and TraPac LLC’s facility in the port of Los Angeles. It raised research and development spending by almost 25 percent last year in a bid to stay ahead of competitors like China’s ZPMC, Austria’s Palfinger AG and U.S.-based Terex Corp., the world’s largest provider of unmanned container transport vehicles. Still, automation faces opposition from labor organizations seeking to protect workers from being replaced by equipment, harking back to the container revolution in the 1960s when hundreds of thousands of jobs were lost at ports around the world because the goods-packed metal boxes could be loaded onto ships by crane. Demands for automation are rising along with global trade volumes and larger ships, like Mediterranean Shipping Company’s MSC Oscar vessel which can carry up to 19,224 twenty-foot containers. Four of 10 analysts surveyed by Bloomberg have a sell rating on Cargotec, and shares are trading at about 13 times estimated earnings this year, lower than most Finnish industry peers, in part due to a series of earnings misses and profit warnings that had analysts questioning the previous management’s strategy. In October 2012, Cargotec cut profit guidance for the second time in four months due to cost overruns in terminal projects. The stock has risen 5 percent since the start of the year, giving it a market capitalization of 2.4 billion euros. “There were too many negative surprises,” Vehvilainen said. “People have long memories.” Cargotec’s three business areas including Kalmar get slightly more than 20 percent of revenues from services, far below the levels at other Nordic manufacturers like Konecranes Oyj, Metso Oyj, Atlas Copco AB and Wartsila Oyj. By 2020, Cargotec wants to get 40 percent of revenue from service and software businesses, which Vehvilainen said could provide hundreds of millions of euros in additional sales. “We have done a very poor job in the past in terms of developing our services,” he said. “That’s a sad story.”

Amendment to Puerto Rico bill threatens Jones Act

JUNE 8, 2016 — The U.S. marine industry is condemning a measure proposed by Rep. Gary Palmer (R-AL) that would exempt Puerto Rico from the Jones Act – which requires waterborne cargo between two points in the United States to be transported on vessels that are American built, owned, and crewed. The Palmer amendment to H.R. 5278, the Puerto Rico Oversight Management, and Economic Stability Act ("PROMESA"), if adopted,would allow foreign vessels to replace American ships and crews in the operation between the island and U.S. mainland. "Given that the Jones Act and U.S. shipyard industry support more than 12,800 jobs and contributes over $953 million in GDP to the U.S. economy from Alabama alone, we are disappointed that Rep. Palmer seems to be more focused on political maneuvering than on protecting our nation's domestic and economic security," said Matthew Paxton, President of the Shipbuilders Council of America (SCA). "Exempting Puerto Rico from the Jones Act would do nothing to address island's debt crisis and would actually jeopardize the more than $1 billion the U.S. maritime industry has invested in the Puerto Rican shipping trade, as well as the thousands of good-paying jobs on the island." The American Maritime Partnership said the amendment, if adopted, would undercut both American shipbuilders and operators that support the Puerto Rico trade, and the ability for the United States to have shipbuilding and transport capacity during times of war. The amendment also would expose American waterways and ports to foreign vessels traveling from Puerto Rico, where previously they were barred. "The Jones Act is not a cause for the island's financial woes. While other industries have fled the island, the domestic maritime industry has made significant capital investments to service the economy and support thousands of family-wage jobs for Puerto Ricans," said Tom Allegretti, AMP Chairman. "Weakening the Jones Act would harm, not help, the Puerto Rican people and the Commonwealth's economy. In fact, a vote against the Jones Act is a vote to outsource American jobs, undermine national security, and degrade homeland security." AMP says that sponsorship of the amendment by Rep. Palmer is surprising given that Jones Act shipping and shipbuilding is a major industry in Alabama, a "top ten" shipyard state, with 12,800 jobs, according to a study by the U.S. Maritime Administration. Shipbuilding provides $953 million in economic impact in Alabama each year with shipyard jobs paying well above national average wages. Rep. Duncan Hunter, Chairman of the House Coast Guard and Maritime Transportation Subcommittee, recently stressed the importance of the Jones Act and its vital role in protecting the security of U.S. borders in the Washington Times, saying: "It's imperative not to conflate the unrelated issues of Puerto Rico's debt and the Jones Act, and to fully grasp the importance of ensuring the safe transport of goods between American ports. There must also be acknowledgment of the dire consequences of exposing ports and waterways to foreign seafarers." The AMP has released a blow-by-blow refutation of claims put out by Jones Act opponents. CLAIM: The Jones Act does not contribute to national security. FACT: The Department of Defense ("DOD"), Navy, and Coast Guard are among the strongest supporters of the Jones Act because the military relies on the commercial maritime industry for its sealift capacity. Within the last year, senior military leaders, including the Commandant of the Coast Guard, have emphasized the critical need for the Jones Act for national security. Also, in a preeminent study of the Jones Act in Puerto Rico, the independent U.S. Government Accountability Office ("GAO") discussed the harm to national security if the Jones Act was changed there. Finally, DOD itself has estimated that it would incur annual costs of tens of billions a year if it were forced to replicate the benefits of the commercial maritime industry. CLAIM: Changing the Jones Act in Puerto Rico will help the island, especially considering its current economic crisis. FACT: Changes to the Jones Act in Puerto Rico would undermine national security, reduce border protection, and outsource American jobs. The GAO study on the Jones Act in Puerto Rico listed a number of potential harms to Puerto Rico itself if the Jones Act were changed, including the possible loss of the stable service the island currently enjoys under the Jones Act and the loss of jobs on the island. Moreover, American domestic carriers are making some of the largest private sector investments currently underway in Puerto Rico, spending nearly $1 billion in new vessels, equipment, and infrastructure. They employ hundreds of Puerto Rican American citizens on the island, on the mainland, and on vessels serving the market, providing highly reliable, low-cost maritime and logistics services. These private sector jobs and reliable services are important to the long-term recovery of the Puerto Rican economy and would be jeopardized by changes to the Jones Act.As recently as a week ago at the 2016 Navy League Sea-Air-Space Exposition, the U.S. Maritime Administrator was clear that attacks claiming that the Jones Act punishes the residents of Puerto Rico are "unfounded" and that "there is no supporting information and every time the government has taken a look at it they have found it to be the contrary of that." CLAIM: The Jones Act increases the cost of goods in Puerto Rico. FACT: Over the last decade, a parade of politicians and "experts" has attempted to estimate the so-called "cost" of the Jones Act in Puerto Rico. Because the estimates have been wildly contradictory, in 2012, Puerto Rico Delegate Pierluisi asked the GAO to determine the true "cost." The GAO studied the issue for more than a year and debunked the previous estimates. First, the GAO said there are far too many factors that impact the price of a consumer good to determine the supposed cost related to shipping, much less the Jones Act. Second, the GAO said, one could not truly estimate the cost unless one knew which American laws would be applied to foreign ships if they were allowed to enter the domestic trades, which would certainly increase the cost of shipping on foreign vessels. CLAIM: Changing the Jones Act in Puerto Rico is a narrow fix that does not impact the rest of the country. FACT: Not true. Changes to the Jones Act in Puerto Rico would undermine hundreds of millions of dollars of recent investments in modern, state-of-the-art American vessels operating between the U.S. mainland and Puerto Rico. More broadly, altering the fundamental regulatory structure in Puerto Rico — literally changing the rules in the middle of the game after massive investments were made in new vessels for that trade — would undermine future investment in every segment of the Jones Act industry nationwide. Even the GAO discussed the potential ripple effects of a Jones Act change in Puerto Rico throughout other American regions. Changing the Jones Act for Puerto Rico would not affect only Puerto Rico; instead, the implications would quickly affect the entire domestic maritime industry. CLAIM: The Krueger report from Puerto Rico said, "Import costs [are] at least twice as high [in Puerto Rico] as in neighboring islands on account of the Jones Act." FACT: There is no study that supports this statement in any way, and the Krueger report cited none. In fact, anecdotal evidence about rates indicates that the opposite is true. For example, one analysis shows it is 40% more expensive to ship goods from the U.S. mainland on foreign vessels to the U.S. Virgin Islands (not subject to the Jones Act) than on Jones Act vessels to Puerto Rico. CLAIM: The U.S. Virgin Islands are not subject to the Jones Act, so why should the Jones Act apply to Puerto Rico? FACT: The two areas are treated very differently under U.S. law. Since 1917, Puerto Rico has operated under a legal structure that generally makes U.S. federal law automatically applicable in Puerto Rico, just as it would be in any American state. That is not true in the Virgin Islands. Also, importantly, the U.S. Virgin Islands are outside the U.S. customs territory while Puerto Rico and the United States are inside the U.S. customs territory. Historically, the Jones Act has applied to U.S. territories inside the U.S. customs territory and not applied to those outside of it. CLAIM: The Jones Act has undermined Puerto Rico's efforts to import liquefied natural gas (LNG). FACT: Flatly false. American carriers pioneered the use of LNG in Puerto Rican markets, deploying the world's first LNG-powered containerships and developing small-scale LNG supply and logistics services to help manufacturing and other industrial facilities on the island reduce the cost and improve the reliability of their energy supply. Puerto Rico's real impediment is limited mainland U.S. export facilities and import facilities on the island, infrastructure to utilize LNG on the island, and demand for bulk LNG. Qualified American vessels are fully prepared to provide bulk LNG transportation services to the island. They could begin service promptly using any of the dozens of LNG vessels already authorized to operate in the trade. Or they could design and build new LNG vessels in full compliance with American safety and regulatory standards, including the Jones Act. Blaming the lack of LNG on the Jones Act is a red herring. CLAIM: All cargo shipped in or out of Puerto Rico must be transported on Jones Act vessels. FACT: This is a common misconception. Cargo from anywhere in the world can be imported into or exported directly from Puerto Rico. In fact, nearly two-thirds of the vessels calling on Puerto Rico are foreign.

Amazon plans to use container ships as DCs, and deliver directly by drone... ooops what about Customs

By Gavin van Marle 01/04/2016
Amazon is building on its recent entry into ocean freight forwarding with plans to invest billions of dollars in its own container shipping fleet.

It is seeking new economies of scale in every area of its international supply chain.

A person who was familiar with a person familiar with the matter, told The Loadstar that Amazon was now developing a strategy of not just controlling the entire end-to-end of its supply chain, but every other supply chain too.

“What Jeff Bezos has worked out is that if Amazon delivers absolutely everything in the world, then it really doesn’t matter what the cost of shipping will be – we’ll all have to pay it.

“What he’s trying to do is consolidate the freight buyer’s market to just one: Amazon. Walmart is a target; Home Depot is a target; Target even admits it’s a target, by calling itself a target.

“That’s the beauty of disruptive technology – Bezos is using Amazon’s cutting-edge tech to become the world’s first retail oligopoly, integrated into an oligopsony – and no one realises that’s happening; right under their very noses,” he allegedly said.

“Acquiring ships is the final part of that strategy. Amazon’s advanced predictive data has outlined that, with so much overcapacity in the global container shipping fleet, we should buy all of the world’s containerised consumer goods and store them on the vessels – there’s certainly enough spare space.”

According to Amazon insiders, the company’s supply chain eggheads are also drawing up a new operating model that could see container vessels anchoring off the coast of large consumer centres – such as the San Pedro Bay, Hudson River or English Channel – and using drones to deliver directly from ship to consumers.

This would cut out the need to use congested container ports, troublesome truckers and fractious freight forwarders, as well as redefining the concept of “near-shoring”.

“Owning our own ships also means we can offer ourselves slow-steaming or express container services; and in fact, our developers are now working on the concept of a ship that can steam slow and fast simultaneously – depending on whether customers are “Prime” members.”

Amazon investors are understood to be backing the strategy, and are braced for between two and three decades of excoriating losses.

“After all, that’s no longer than the container lines have been swimming in red ink and because of its edge in tech, no one can play the zero-sum game as well as Amazon,” the source told The Loadstar.

He added that non-containerised consumer goods, such as luxury cars and super-yachts, the big bucks stuff that the hoi polloi can look at in Amazon-delivered glossy magazines, are reserved for Mr Bezos and his friends.

With Panama ditch ready to open, One-third of the laid-up tonnage consists of unemployed containerships of 7,500-19,000 teu.

Idled global container capacity has reached a record high of 1.57m teu, according to the latest data from Alphaliner.

And one-third of the laid-up tonnage consists of unemployed containerships of 7,500-19,000 teu.

The 352 laid-up ships, as of 11 March, account for 7.8% of the global container vessel fleet – a number expected to grow with 1.25m teu of capacity scheduled for delivery this year.

After deductions for vessel scrapping, Alphaliner calculates that the newbuildings will add a full-year fleet growth of 4.3%. This compares with estimated demand growth of just 1.8%.

Continued weakness on the Asia-Europe, Asia-Latin America and Asia-West Africa trades has left container lines with a number of redundant ships.

Alphaliner noted that some 30 ships of 9,000-14,000 teu had become surplus following the axing of a series of Asia-North Europe loops by the four east-west alliance groups, with the latest network rationalisation announced by the CKYHE alliance this morning.

Owners have two lay-up options – hot or cold. In the case of the former, the vessel will wait at anchor but remain fully crewed and able to be redeployed almost immediately. Vessels in cold lay-up retain a skeleton crew and only run essential systems. These could take up to three months to reactivate, and still involves significant costs.

As a result, ocean carriers look first to see if they can cascade surplus ships onto other trades whilst also off-hiring any chartered smaller tonnage deployed on smaller routes as early as possible.

“Carriers are starting to shift their surplus ships out of these (weak) sectors, creating havoc on other trades,” said Alphaliner.

Meanwhile, continuing low bunker fuel costs have encouraged carriers to divert some ships around the Cape of Good Hope, instead of through the Suez and Panama canals, thus saving on canal transit tolls and absorbing around 100,000 teu of vessel capacity across 12 liner services, estimated Alphaliner.

Unsurprisingly, the overcapacity crisis has put further pressure on charter rates and obliged containership owners to instruct brokers to be flexible with terms and conditions, including offering free positioning.

And according to London-headquartered shipbroker Braemar ACM, few ocean carriers are prepared to put any firm periods on charters in sectors where there is an abundant choice of ships. It said that “flexi-period” terms, with only the daily hire fixed was now normal with most liner companies.

The charter market is experiencing “further misery”, said Alphaliner, and would “remain in the doldrums” as long as the supply-demand gap remained.

Meanwhile, recent fixtures reveal how far charter rates for larger vessels have plummeted.

Hapag-Lloyd was recorded fixing an 8,000 teu ship recently for two months trading between Asia and the west coast of South America at just $8,000 per day with flexible options.

While the overcapacity crisis in the larger sizes is continuing to drag down daily hire rates to new lows, the dearth of newbuilds in recent years of the feeder sizes has kept the sector relatively healthy, providing a silver lining for hard-pressed containership owners.

Hamburg Sud recently fixed a 1,100 teu ship for 16-18 months to deploy on its US west coast to South Pacific service at $9,600 per day.