Container Shipping & Trade 1st Quarter 2016 by rivieramaritimemedia

1st Quarter 2016 www.containerst.com

No time to delay on container weighing preparation, warns Global Shippers’ Forum COSCOCS: the rise of a new superpower

ULCS: how big can they grow? “The market was great, then it got terrible, and right now, it is stable, but at a much lower level then it should be.” Andrew Abbott, Atlantic Container Line CEO, on the transatlantic tradelane, page 14

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contents

1st Quarter 2016 volume 5 issue 1

34 11

Regulars 3 COMMENT 4 BEST OF THE WEB 44 LAST WORD

Market updates 6 Freight rates reached historical lows last year and this trend looks set to continue in 2016, driven by overcapacity and weak demand 8 The round of merger and acquisition activity in the container shipping industry will have a major effect on the league table of the worldâ&#x20AC;&#x2122;s largest box ship owners (VesselsValue.com)

Ship description 11 United Arab Shipping Co has deployed its second 18,800 teu LNG ready box ship Al Muraykh

Trade route 14 The traditionally balanced transatlantic trade has tipped as a result of the cascading of larger vessels into this market

Customer profile 26

18 Mandatory container weighing, market-based measures for CO2 emissions and mega alliances are among the most pressing issues for the Global Shippersâ&#x20AC;&#x2122; Forum

Operator profile 22 Hyundai Merchant Marine says it needs to restructure debt and vessel charter fees in order to avoid bankruptcy

Regional analysis: Asia 24 The launch of ULCVs has boosted transshipment development in Asia Pacific ports 26 The merged China Shipping and Cosco container shipping unit is likely to become the dominant carrier in the CKYHE alliance

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Container Shipping & Trade | 1st Quarter 2016

contents 28 As the competition heats up, major initiatives are underway at India’s Vizakha Container Terminal

1st Quarter 2016 volume 5 issue 1

Class societies

Editor: Rebecca Moore t: +44 20 8370 7797 e: rebecca.moore@rivieramm.com

31 LNG, the next generation of ultra large container ships (ULCS) and new software are some of the major areas being covered by class societies in the container sector

ULCS 34 While plans are on the drawing board to create a new generation of ultra large container vessels, ports are unlikely to be able to keep up

Ballast water treatment systems 38 The countdown is on as the ballast water convention is expected to be ratified this year, while US rules and test methods for ballast water treatment have come under the spotlight after the USCG announced some changes

Emissions abatement 41 A European feeder vessel owner has chosen the Wärtsilä hybrid scrubber for its newbuild vessels

Fleet stats & analysis 42 Feeder business is going from strength to strength, with most aspects in this sector’s favour

Next issue Main features include: Trade route: Transpacific Regional analysis: Europe Top 20 carriers Ship operations: communications Ship operations: reefers Ship operations: coatings Ship type: intra-Asia container vessels.

Contributer: Gavin van Marle t: +44 20 7394 7209 e: gavin.vanmarle@rivieramm.com Portfolio Manager – Media & Event Sales: Bill Cochrane t: +44 20 8370 1719 e: bill.cochrane@rivieramm.com Head of Sales – Asia: Kym Tan t: +65 9456 3165 e: kym.tan@rivieramm.com Senior Sales Consultant: Ed Andrews t: +44 20 8530 8322 e: ed.andrews@rivieramm.com Group Production Manager: Mark Lukmanji t: +44 20 8370 7019 e: mark.lukmanji@rivieramm.com Subscriptions: Sally Church t: +44 20 8370 7018 e: sally.church@rivieramm.com Chairman: John Labdon Managing Director: Steve Labdon Finance Director: Cathy Labdon Operations Director: Graham Harman Editorial Director: Steve Matthews Executive Editor: Paul Gunton Head of Production: Hamish Dickie Published by: Riviera Maritime Media Ltd Mitre House 66 Abbey Road Enfield EN1 2QN UK

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Container Shipping & Trade | 1st Quarter 2016

Disclaimer: Although every effort has been made to ensure that the information in this publication is correct, the Author and Publisher accept no liability to any party for any inaccuracies that may occur. Any third party material included with the publication is supplied in good faith and the Publisher accepts no liability in respect of content. All rights reserved. No part of this publication may be reproduced, reprinted or stored in any electronic medium or transmitted in any form or by any means without prior written permission of the copyright owner.

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COMMENT | 3

COSCOCS takes on Maersk and kickstarts alliance shake-up

I Rebecca Moore, Editor

t has happened. The merger of Cosco and China Shipping has taken place (see pages 26-27), creating a new super power that is likely to cause a major alliance upheaval. And it has had a huge impact on the world’s largest shipowners, catapulting the newly created China Cosco Shipping Corp (COSCOCS) to become the largest and highest valued shipowning group in the world, pushing former number one Maersk into second position. COSCOCS owns a whopping 828 vessels and is worth US$21.5 billion, leaving Maersk trailing with a mere 263 owned vessels and a value of US$12.2 billion, according to VesselsValue.com. MOL has been pushed from number two to third position, with 227 vessels and a worth of US$11.6 billion. (See pages 8-9). And according to VesselsValue.com data the new company has become the second largest container shipowner in the world in terms of fleet value, displacing MSC. (These figures only take into account vessels that are directly owned by the line and do not included those they have chartered in). Cosco owns 117 box vessels with a combined value of US$4.93 billion, while China Shipping has a box fleet of 87 vessels worth a total of US$4.17 billion. According to Alphaliner, it has a combined orderbook of 36 container ships totalling 556,000 teu, to be delivered over the next three years, bringing its total fleet to over 2 million teu by the end of 2018. All these figures point to the arrival of a new super power in the container shipping sector that is likely to have a major impact and cause an alliance shake-up. It has been reported that COSCOCS, Evergreen, OOCL and CMA CGM are in talks to create the biggest alliance yet. The creation of such a mega group would be a major challenge to the 2M alliance. The current alliance set up sees OOCL as part of the G6, Evergreen and Cosco as CKYHE members and CMA CGM and China Shipping

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in the Ocean Three. If a new mega alliance is created, its after effects could lead to a further alliance reshuffle as the remaining players of the CKYHE, G6 and Ocean Three groups will be left without enough partners to offer all their services. They would be forced to create a new alliance, or alliances, in order to be able to compete. Such an overhaul of the alliances will have shippers worried as it could have a big impact on network coverage and the services that are available. It seems that the latest mergers will not stem the fall in rates, but it remains to be seen what impact an alliance reshuffle will have on prices. A recent Drewry Supply Chain Advisors webinar about the market reached this conclusion: “We do not expect the recent wave of industry consolidation to impact freight rates in 2016. M&A activity will not in itself impact capacity in the market and so rates. Nor is consolidation announced thus far anywhere near sufficient to reduce the very competitive nature of the market. In fact, we expect freight rates to continue to fall in 2016.” Could the formation of COSCOCS and the acquisition of APL by CMA CGM be just the start of a wave of M&A activity within the container ship sector? There must be a good chance of this happening, with some container players currently in very weak financial situations. And key industry players believe this is the case. At the COSCOCS launch event, company chairman Xu Lirong was reported as saying that mergers were key to coping with the difficult market conditions. The Drewry Supply Chain Advisors webinar concluded: “We expect further industry consolidation over the next few years as container shipping remains very fragmented with poor financial returns. However, recent M&A activity has been driven more by the particular circumstances of individual companies than any general trend.” CST

Container Shipping & Trade | 1st Quarter 2016

4 | BEST OF THE WEB

BEST OF THE WEB

containerst.com

Log onto our new, improved website to keep track of the latest industry news Container Shipping & Trade’s website covers the latest technology and market developments within the containership sector. Our news coverage is now exclusively online and free to read. Here are some of the most popular stories covered over the last few months

Becker Marine wins German grant for Hamburg LNG pilot project Germany’s ministry of transport and digital infrastructure has awarded a “seven-figure” grant to Becker Marine Systems’ LNG PowerPac, billed as “the world’s first flexible solution to supplying power to container ships at ports”, for a pilot project at the Port of Hamburg. LNG PowerPac is a unit the size of two 40ft containers that combines a gas-powered generator with a 1.5MW output and a 20ft LNG ISO tank. Once the container ship is moored, standard loading equipment at the port of call lifts the PowerPac on board. There, it provides energy to the on-board power supply during layover. The PowerPac provides 8.2 tonnes of LNG, creating “an efficient supply of energy on board for up to 30 hours”, according to Becker Marine director LNG hybrid Max Kommorowski. However, ships spending longer in port in Hamburg can use a cascading option, installing one tank container on top of the other for each PowerPac, giving up to 60 hours’ power supply. http://bit.ly/1TMLo4u

CMA CGM largest boxship ever to call in US

NOL posted a net profit of US$707 million, which includes a one-off US$888 million gain on the sale of APL Logistics. This is its first annual profit since 2010. Excluding the sale proceeds NOL incurred a full year net loss of US$181 million, an improvement of 30 per cent compared with 2014. Its container line APL reported a revenue of US$1.28 billion in the final quarter of 2015, a 29 per cent contraction from the year before. Average freight rates fell 22 per cent due to pressure from overcapacity in the industry. Volume slid 12 per cent in the quarter year-on-year. In response to weak global demand, APL maintained prudent management of its deployed capacity, while keeping its headhaul asset utilisation rate at 90 per cent. NOL said its acquisition by CMA CGM is still on track to obtain the necessary anti-trust clearances by mid 2016.

CMA CGM Benjamin Franklin – the largest vessel to ever call in the US –was inaugurated in February at the Port of Long Beach. CMA CGM said the inauguration of the 18,000 teu and 1,300ft long vessel “symbolises CMA CGM’s faith in the American economy, as well as its ambition to be a pioneer and leader in the maritime industry in the United States.” The CMA CGM Benjamin Franklin’s Long Beach call is part of a series of four trial-calls decided by Jacques R Saadé to prepare US ports to accommodate larger vessels. http://bit.ly/1RTkvuv

http://bit.ly/1XVtQlT

K Line’s box sector posts loss Japanese carrier K Line has downscaled its financial results for the fiscal year ending March 2016 on the back of the widening imbalance of supply and demand in container shipping and a decrease of demand in dry bulk business. And the carrier has revealed that for the nine months ended December 31 2015, its container business segment registered a loss of US$34.6 million ( JPY4.2 billion) compared to an income of US$15 million for the same period in 2014. Its operating revenue fell year-on-year by 4.2 per cent. Overall cargo volumes fell by 7 per cent.

Maersk Line’s 2015 profit plunges after ‘significant’ decline in freight rates

http://bit.ly/1TLfFj1

NOL trims quarterly loss NOL Group has reported a net loss of US$77 million for the fourth quarter of 2015, a small improvement from the US$85 million loss in the same quarter in 2014. On a full year basis,

Container Shipping & Trade | 1st Quarter 2016

Maersk Group has seen its 2015 profit slashed compared to 2014 on the back of a widening supply-demand gap across most of its businesses in the second half of the year that led to “significant” freight rate and oil price reductions. Drilling down into the results, Maersk Line’s profit of US$1.3 billion signified a slump of 56 per cent compared to 2014 (US$2.3 billion) and its ROIC of 6.5 per cent fell compared to 11.6 per cent in 2014. The underlying profit declined to US$1.3 billion (US$2.2 billion). A statement said that this was “due to poor market conditions leading to significantly lower freight rates, in particular in the second half of the year, only partially offset by lower bunker prices, US$ appreciation and cost efficiencies”. http://bit.ly/1TgnMF9

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6 | MARKET UPDATES

Freight rates set to stay in the doldrums Freight rates reached historical lows last year and this trend looks set to continue in 2016, driven by overcapacity and weak demand

he erosion and volatility of freight rates that was seen last year is set to continue in 2016, with an increase in the idling of ships and the continued cascading of vessels, according to Drewry Shipping Consultants. In Drewry Webinar on Container Freight Rates & Shipping Market Outlook Philip Damas, director of Drewry Supply Chain Advisers, highlighted how there had been a substantial erosion in global spot rates, which reached record lows last year. They slumped to US$1,200 per teu, with rates

as much as 40 per cent down year on year in December. He added: “There was a slight increase in January because of the Chinese New Year on 8 February, so there has been a surge of cargo ahead of this. But we believe that this increase is likely to be short-lived.” Singling out the recent container freight spot rate trends on the east–west trades, he said: “There has been a clear downwards trend for both the Asia– Europe and Asia–US trades over the past three years and significant reductions were reached last year, with historical lows and substantial volatility.” He said that while last year and in January 2016 there were some notable general rate increases, these had “eroded over time” due to strong competition and overcapacity. Mr Damas homed in on the intra Asia trade which has been badly affected by overcapacity: “Rates were relatively stable

Container Shipping Market Outlook Global Demand Development 800,000

Global Demand (000’s teu)

700,000

+5.3%

+1.3%

+2.4%

2014

2015F

2016F

600,000

500,000

400,000

300,000

200,000

100,000

2012

2013

Oceania

Latin America

Asia

Africa

Middle East & South

Europe

North America

Source: Drewry’s Container Forecaster (www.drewry.co.uk/publishing)

Container Shipping & Trade | 1st Quarter 2016

after 2013 but this situation has now changed and since 2014 there has been a very substantial reduction. Rates are historically low, down 20 per cent year on year with the introduction of 25 additional intra Asia services last year.” Emerging market trade lanes elsewhere have also suffered. Dewry’s China–Brazil freight rate benchmark shows “the most dramatic erosion of rates.” It crashed by 74 per cent in December 2015 year on year, collapsing to US$500 per 40ft. Mr Damas commented: “It is a really incredible erosion of rates, due to low load factors. Rates remain weak in the short term. I do not think they are sustainable – US$500 does not anywhere near cover the costs of shipping lines, so there may be an upwards correction.” He pointed out that carriers had previously tried to implement increases but that they had not managed to make them work. Meanwhile, the contract freight rate market has also suffered high volatility, with a decline of 14 per cent between February and November last year according to Drewry’s contract freight rate benchmark, and a 5 per cent fall between August and November. Global supply and demand have also been imbalanced and the oversupply of capacity against demand is set to continue. Drewry’s Container Shipping Outlook, based on its quarterly Container Forecaster, shows how the situation worsened between 2014 and 2015, with growth in demand falling from 5.3 per cent to 1.3 per cent last year. Demand is expected to strengthen a little this year with a forecast growth of 2.4 per cent. Drewry Shipping Consultants head of container research Neil Dekker explained just how dire last year’s forecast demand growth was. “That is the lowest annual volume growth in our data, apart from 2009, since we started in the 1970s.” He said that a key reason was the Asia– Europe headhaul decline in demand of 4.5 per cent, with Hong Kong registering a decline of 8-9 per cent in volumes. In contrast to the slow growth of volumes, supply soared last year. The global fleet experienced a spurt in growth

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MARKET UPDATES | 7

Recent Spot Container Freight Rate Trends Europe & US Imports from Asia (US$ per 40ft)

$2,000

$2,500

$1,500

$1,000

Marketshare rate wars

$500

Marketshare rate wars

$0 Jan-13

Apr-13

Jul-13

Shanghai – Rotterdam

Oct-13

Jan-14

Apr-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Source: Drewry’s Container Freight Rate Insight (www.drewry.co.uk/cfri) & World Container Index (www.worldcontainerindex.com)

possibility of upgrading from 5,000 teu to 8,000 teu, so there will be a little bit of relief for some of these bigger ships.” But he warned: “It is very important that they do not reconfigure services by bringing in too many weekly services and too much capacity all at once. Quite clearly that will have a detrimental effect on the balance between supply and demand. The

$1,400

112

108

$1,000

106 $800 104 $600 102 $400

100

$200

96 2014

Weighted East-West Freight Rate incl Fuel

2015

East-West Supply/Demand Index

Source: Drewry’s Container Forecaster (www.drewry.co.uk/publishing)

For more articles visit www.containerst.com

2016

East‐West Supply/Demand Index

110

$1,200

US$ per teu

Jul-14

Hong Kong – Los Angeles

Supply-Demand Vs Freight Rates

2013

$3,000

Freight Rate Forecast: East-West Trades

2012

Capacity & GRI initiatives

US$ per 40ft Container

of 8.5 per cent, with 1.2 million teu being delivered – including 40 ships with nominal capacity of 14,000 teu and over, nearly all of which were phased into the Asia–Europe trade. “Liners are having a torrid time matching supply with demand,” commented Mr Dekker. “In 2016 fleet growth will be just under 5 per cent. Looking at this simplistically, some might think that it will be possible to match this to demand, given a bit of an uptake on the demand side. But you have to look at this on a trade route level and the delivery of more and more bigger ships, most of which are going to Asia–Europe and pushing smaller ships out to Asia–Middle East and the transpacific. We see more and more vessels of 10,00014,000 teu rolling into the transpacific as part of this cascade. Also, more 8,00010,000 teu ships are coming into north– south routes. We have seen some awful rates in 2015 in some of these routes. “Although demand is looking a bit better, we do not see a better picture for freight rates. It is the same old story. Lines are challenged at every trade route level to maximise supply with demand.” Indeed, contract rates are lower in 2016. Mr Dekker said: “Anecdotally, in 2016 a number of big Asia–Europe contacts that have been signed are at significantly lower rates than in 2015.” One positive factor is the widening of the Panama Canal in 2016. “Once that happens, lines have the opportunity to reconfigure their networks, and the

management of the deployment of these vessels is crucial for the lines.” In terms of idled capacity, he said that 1 million teu was laid up just before the end of December, representing 4.7 per cent of the global fleet, up from 1-2 per cent at the start of 2015. “We see that increasing in 2016, but that will only be driven when lines start to lose more cash,” Mr Dekker commented. One asset for carriers in the difficult global market has been their ability to reduce their costs, through activities such as slow steaming. Furthermore, the decrease in fuel prices has been very beneficial. “Without that gift in 2015, many people would say than the lines would not have made much profit at all,” Mr Dekker commented. “They have reduced costs at a steeper angle than the drop in overall freight rates. However, in 2016, our view is that the lines’ ability to reduce costs steeper than freight rates may be compromised.” Reasons include the additional costs of empty repositioning back to Asia, and the potential growth of idling vessels. If a 10,000 teu ship is laid up for more than three months in Asia, reactivation costs alone are around US$500,000, Mr Dekker said, adding: “This will be a very big issue for them as we progress in 2016 and will impact on their overall profitability.” He warned: “The lower rates forecast and potential higher costs mean there may be a point in 2016 when lines start running out of cash and the number of idled ships increases.” CST

Container Shipping & Trade | 1st Quarter 2016

8 | DATA ANALYSIS

Swings and roundabouts This year will see non-operating owners take the lion’s share of new container ship deliveries, while in 2017 carriers will return with a vengeance, writes Gavin van Marle

he round of merger and acquisition activity that has kicked off in the container shipping industry will have a major effect on the league table of the world’s largest box ship owners, with Chinese conglomerates becoming increasingly important players. According to VesselsValue.com data compiled exclusively for Container Shipping & Trade, the merger between China’s two state-owned carriers, China Shipping Container Lines Co (CSCL) and China Ocean Shipping (Group) Co (Cosco), will see the resulting company become the second largest container shipowner in the world in terms of fleet value, displacing Mediterranean Shipping Co (MSC). It should be noted that the figures quoted here only take into account vessels that are directly owned by the line and do not include those that it has chartered in – hence the inclusion of several large non-operating owners. Under the terms of the merger Cosco – currently the third largest container shipowner, with 117 box vessels with a combined value of US$4.93 billion – will take over the container operations, while CSCL,

whose box fleet of 87 vessels is worth a total of US$4.17 billion, will manage the wet bulk and ship financing activities. Together, the two carriers will have a fleet worth US$9.1 billion, comprising 203 vessels. And as long as CMA CGM’s take-over of APL is completed this year as expected, the French carrier, too, will leapfrog MSC with a combined fleet of 152 vessels with a total value of US$7.67 billion. Although it is one of the smaller container ship operators, APL also has the lowest ratio of chartered-in vessels of any of the top 20 carriers. In terms of capacity that is actually operated, the two leading carriers have long been Maersk Line and MSC, in that order, with the last few years seeing MSC steadily close the gap on its Danish rival. An order last year for 20 second generation ultra large container vessels (ULCVs) worth US$2.2 billion will see Maersk push forward once more, although there are a number of units being delivered to non-operating owners in 2016 and 2017 that are likely to find employment in MSC’s fleet. So it may be that, for a time, the Geneva-headquartered line becomes the largest in terms of capacity operated.

TOP 20 LINES BY VALUE BEFORE MERGERS

TOP 20 LINES BY VALUE AFTER MERGERS

COMPANY

NO.

TEU

VALUE $M

Moller Maersk AS

262

2,021,375

12,393

5,767

COSCO & CSCL

203

1,523,140

9,104

826,833

4,932

CMA CGM + APL

152

1,219,845

7,678

757,851

4,699

MSC

197

1,229,915

5,767

Seaspan Corporation

696,648

4,467

Seaspan Corporation

696,648

4,467

Shoei Kisen

563,045

4,222

Shoei Kisen

563,045

4,222

Hapag Lloyd

577,155

3,716

111

549,716

3,542

NO.

TEU

VALUE $M

Moller Maersk AS

262

2,021,375

12,393

MSC

197

1,229,915

COSCO

117

CMA CGM

China Shipping Container Lines Hapag Lloyd

696,307

4,172

Evergreen Marine Corp

577,155

3,716

OOCL

541,535

3,463

111

549,716

3,542

UASC

494,328

3,402

OOCL

541,535

3,463

PIL

123

459,397

3,229

UASC

494,328

3,402

Zodiac Maritime

394,311

2,759

123

459,397

3,229

NYK Line

445,916

2,685

Evergreen Marine Corp

PIL APL

461,994

2,979

Costamare

462,842

2,623

Zodiac Maritime

394,311

2,759

Hamburg Sud

322,802

2,586

NYK Line

445,916

2,685

Bank of Communications

275,577

2,346

Costamare

462,842

2,623

Offen Claus-Peter

406,123

2,116

Hamburg Sud

322,802

2,586

Eastern Pacific Shipping

315,401

1,978

Bank of Communications

275,577

2,346

Grand China Intermodal

239,532

1,953

Offen Claus-Peter

406,123

2,116

Yang Ming Marine Transport

294,572

1,914

Eastern Pacific Shipping

315,401

1,978

UNMERGED

Container Shipping & Trade | 1st Quarter 2016

MERGED

For more articles visit www.containerst.com

*All data provided by VesselsValue.com

The VesselsValue.com data reveals two important indicators, assuming a general two-year lead time between ordering and delivery of a vessel. Firstly – and with the benefit of hindsight – the downturn in the market that was principally caused by overcapacity began in 2014, notwithstanding a surprisingly strong peak season on the Asia-Europe trade. This suggests that carriers had begun to rein in their ordering activity in the early part of the year before being misled by the peak season which suggested a sustained recovery. The only line that placed significant orders during this period was United Arab Shipping Co (UASC), and that came as part of a complete strategic overhaul of the company. Throughout this period new ship prices have been in a deflationary spiral. Shipyards face the same structural issues that their customers face – there is too much shipbuilding capacity, and demand is flat. Over the last few years those most likely to place orders have been opportunistic cash buyers such as the Greekowned firms which were able to negotiate rock-bottom prices. It comes as little surprise that there are three Greek owners in the top 10 firms that are taking deliveries this year. Combined, the top 10 shipowners expect to receive US$7.5 billion worth of assets this year, and the three Greek firms of Costamare, Zodiac Maritime and Capital Maritime & Trading Corp account for a quarter of that. Of course, the other notable presence in that table are the Chinese shipowners that have effectively subsidised the country’s shipyards, that could otherwise be staring down the barrel of bankruptcy. The series of orders placed by China’s Bank of Communications, which is now one of the fastest growing shipowners in the world, SinOceanic Shipping and Grand China Intermodal mean that Chinese owners will take 36 per cent of the value of the top ten. It is ironic that at a time when carriers have come to rely increasingly on the spot market for their earnings, they have been willing to sign such long-term charter deals. Although spot rates do not determine contract rates, they do influence them in that they provide a form of benchmark. And as spot rates have hit new lows at a time when annual contracts are being negotiated, there has been a commensurately growing reluctance on the part of carriers to commit to long-term contract rates that offer such poor terms. Nonetheless, these deals are being done. The growth of Seaspan is testament to that. The Hong Kongheadquartered shipowner, listed on the New York and Toronto stock exchanges, is currently the fifth largest shipowner in the world in terms of fleet value and will remain in that place, even after the Cosco-CSCL merger and CMA CGM’s acquisition of APL’s

owner Neptune Orient Lines are completed. The contrast that 2017 will bring could hardly be greater. Deliveries next year are almost completely dominated by container carriers, with just two non-operating owners – Seaspan and Minsheng Financial Leasing Co – in the top ten. Their share will be just 10 vessels out of a total of 74, and only 12.4 per cent of the combined value of US$9.3 billion of the top in 2017. For those in the carriers’ trade development departments, 2017 has the potential to be a grim year. The large number of ULCVs due to come on stream could be ruinous, particularly if there is no sustained global economic recovery this year, of which early evidence is scant. With 35 ULCVs due to be delivered in 2016, and a further 55 in 2017, representing a combined capacity of 1.5 million teu, it is little wonder that some analysts are predicting a bloodbath. Carriers do, however, have some time in which to prepare, and it would not be surprising if there was a combination of delayed deliveries, increased scrapping of older units and the return of the sight of large numbers of ships at anchor in cold lay-up. An aside to this is the return of Islamic Republic of Iran Shipping Lines (IRISL), which has reportedly arranged US$5 billion in loans from Chinese lenders and is preparing an order for a series of 14,000 teu vessels, since US, EU and UN sanctions on its home country were lifted in mid January. The return of carriers to the ordering scene in 2017 also explains the changes in ordering activity by flag state in that year, compared with 2016. Nonetheless, the amount of capacity coming into the market simply does not match the capacity that needs to leave it. Last year saw a total of 176,384 teu sent to recycling yards. To some extent, the lack of tonnage being sent for scrap has to do with factors beyond the control of the shipping industry. Some two-thirds of Chinese steel producers are said to be operating at a loss and the price of steel is also in the doldrums. This means that some owners who might otherwise have been tempted to find cash buyers for their vessels prefer to hold on to assets in the hope of a better return down the line. Although this tactic contributes to the overall global fleet capacity figures, the vessels themselves are likely to be idling. Despite the Panama Canal expansion project finding its schedule altered once more – the project is now expected to be completed in the second quarter of this year, although given its past history it could easily slip – it is likely that most scrapping activity in 2016 will resemble that of last year, with the majority being the old Panamax size. CST

TOP 10 CONTAINER LINES WITH CONTAINER DELIVERIES IN 2016 VS 2017 2016 COMPANY Bank of Communications

2017 NO.

TEU

VALUE $M

NO.

TEU

VALUE $M

160,212

1,381

COMPANY Moller Maersk AS

261,780

2,220

COSCON

UASC

127,491

1,068

203,000

1,609

Costamare

114,000

971

OOCL

126,600

1,067

Eastern Pacific Shipping

96,000

798

CMA CGM

104,600

873

SinOceanic Shipping

88,000

719

MSC

82,400

719

Zodiac Maritime

76,000

710

MOL

80,600

680

Grand China Intermodal

72,000

617

Seaspan Corporation

73,000

667

Shoei Kisen

70,000

578

Evergreen Marine Corp

63,300

544

NYK Line

42,000

347

Minsheng Financial Leasing

57,600

486

Capital Maritime and Trading

37,176

334

NYK Line

56,000

472

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Container Shipping & Trade | 1st Quarter 2016

SHIP DESCRIPTION | 11

Enter UASC’s latest LNG ready giant UNITED ARAB SHIPPING CO HAS DEPLOYED ITS SECOND 18,800 TEU LNG READY BOX SHIP AL MURAYKH by Andrew McAlpine

hroughout the history of the container industry, shipping lines have looked to increase their market share in two different ways. The first is by the acquisition of smaller companies. Shipping lines such as Maersk Line and CMA CGM have done this on a regular basis, most notably in recent years. The second option is to grow organically, as has Mediterranean Shipping Co (MSC). Another shipping line that has taken the organic approach to growth in recent years is Kuwait based United Arab Shipping Co (UASC). The relatively young company was established in July 1976 by a joint shareholding comprising six Arab states – Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates. Officially the line has its headquarters in the city of Safat, Kuwait, but since the early 1990s its commercial and operations centre has been based in vibrant Dubai. Over the last few years it has been actively growing its presence in the global container trades. It has achieved this through a number of vessel sharing agreements with other lines, most recently becoming a founding member of the Ocean Three alliance together with China Shipping Container Lines (CSCL) and CMA CGM. In August 2013, as part of its ambitious growth strategy, it placed an order for

UASC is one of the first vessel owners to plan its newbuilds for LNG retrofitting

17 ultra large container vessels (ULCVs). A number of shipyards tendered for the huge order, but the world’s number one shipbuilder, South Korea’s Hyundai Heavy Industries (HHI) was the successful bidder. The landmark deal, which was the largest in UASC’s history, comprised five 15,000 teu A15 class vessels to be built at HHI’s Ulsan shipyard and five 18,800 teu A19* class vessels to be built by the Hyundai Samho Heavy Industries yard in Mokpo. The order also had options for an additional one A19 and six A15 vessels, all of which were exercised early the following year. Together with the options the total value of the order was US$2.5 billion, with all vessels being classed by DNV GL. The first A19 vessel Barzan was delivered in April 2015, followed by the second, Al Muraykh, in August. It has become abundantly clear that only the most fuel efficient vessels will survive into the future, and fuel economy was a major consideration for UASC during the design process for the A19 class. Since 1997 the line has worked

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closely with Hamburg based consultant and ship designer Technolog Services on the optimisation of its newbuildings. The size and capacity of its new ships have grown steadily from the initial Panamax class of 10 A4 (4,100 teu) ships launched in 1998, and the eight A7 class (7,200 teu) vessels launched in 1998, to the nine A13 class (13,500 teu) ships launched in 2010, and now the latest A15 and A19 classes. Al Muraykh, along with the other A19 class ships, is heralded as the world’s most environmentally friendly vessel. Its design has been optimised to ensure the highest possible efficiency without compromising container capacity. It is one of the first container ships to have an overall length of 400m, its draught of 16m allows for up to 10 tiers of containers to be loaded below deck, and a breadth of 58.6m equates to 23 rows of containers wide. As with all ships in this size bracket, Al Muraykh has the now familiar split superstructure design which maximises container intake without increasing overall dimensions. One of the main differences

Container Shipping & Trade | 1st Quarter 2016

12 | SHIP DESCRIPTION

between ships of this size and design is the configuration of the container bays. Al Muraykh has nine bays forward of the bridge, 11 mid ships and four bays aft of the funnel. In theory, bays behind the bridge can be loaded with higher stacks of containers than forward of the bridge, in order to comply with Navigation Bridge Visibility rules (under SOLAS). On deck a maximum of 11 tiers high can be loaded. The additional tier is thanks to extra high lashing bridges which are five tiers high on the outermost cells. Supplied by MacGregor, they are the tallest lashing bridges installed on any container ship currently afloat. The extra height means that when a 6th tier or higher of containers is loaded on a bay, the bottom of that 6th tier is lashed. Although lashing bridges are not elements of the ship’s hull, they are an integral part of the ship and cargo system. MacGregor was fully involved in the ship’s design from a very early stage. According to the company, the cargo handling system is designed to maximise payload potential and operational efficiency, which in turn reduces the environmental impact by minimising

emissions per teu carried. The optimised MacGregor cargo handling system aboard Al Muraykh comprises hatch covers, under-deck cell guides, a comprehensive lashing system, and MacGregor’s Lashmate software program. The software aims to verify the quantity of cargo loaded on board. It is able to do so by comparing the actual quantity of cargo being loaded considering Al Muraykh’s particulars and lashing system. It then verifies that all safety conditions are met. If it detects any excessive forces, for example, it can propose alternative loading options. The main features of the Lashmate software are that it: • calculates the lashing forces for the entire ship’s lashing system and actual loading cases, • gives a warning if excessive forces are detected, • can calculate and suggest an optional stack distribution, • can calculate according to DNV GL, Lloyd’s Register, ABS, Bureau Veritas and Korean Register rules, • uses interface files from loading computers as input files, and

• can read standard EDIFACT (Electronic Data Interchange For Administration, Commerce and Transport) BAPLIE and a number of other input file formats. Unlike Maersk Line’s twin engine Triple-E series, UASC decided on a single engine design for Al Muraykh. It is fitted with an MAN B&W 10S90ME-C9&10 unit that was built under licence by Hyundai. Lukoil Marine Lubricants supplied its iCOlube, which it describes as an intelligent cylinder oil lubrication unit designed to optimise both the performance and the overall efficiency of the engine. The engine drives a single fixed pitch five blade propeller. Although a top speed of 22 knots is possible, the vessel’s optimal speed will be 16-18 knots which has become the norm on the major east-west trades. A Becker Twisted Fin energy saving device is fitted in front of the propeller. Developed specifically for fast container ships and other vessels that have a bulbous stern design, each unit is individually designed according to the vessel’s hull geometry, propeller design and engine. Becker also supplied a twisted rudder and installed its Becker Intelligent

AL MURAYKH MAIN PARTICULARS

On deck a maximum of 11 tiers high can be loaded thanks to extra high lashing bridges

Container Shipping & Trade | 1st Quarter 2016

Call sign: 9HA3725 Port of registry: Valletta, Malta IMO number: 9708863 Class: DNV GL 1A1, Container Carrier, DG-P, BIS, TMON, BWM-T, E0, NAUTOC, Recyclable, Clean, Nauticus (Newbuilding) further extended by LNG preparation and hull stress monitoring Operator: United Arab Shipping Co Builder: Hyundai Samho Heavy Industries Co, South Korea Keel laid: 27 February 2015 Launched: 31 May 2015 Delivered: 2015 Hull no: S747 Length o/a: 400m Breadth: 58.60m Draught: 16m Gross tonnage: 195,636 Deadweight: 199,744 Main engine: 1 x Hyundai MAN B&W 10S90ME-C10.2 Bow thruster: 2 x Kawasaki Reefer: 1,000 teu Total capacity: 18,800 (teu declared)

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SHIP DESCRIPTION | 13

Monitoring System (BIMS) for rudder force measurement, and HP Super, its lubrication free carrier bearing material. Fuel savings of up to 3 per cent are expected, as well as a reduction in NOx and CO2 emissions. Preliminary calculations indicate that Al Muraykh’s Energy Efficiency Design Index (EEDI) value is close to 50 per cent below the 2025 limit set by IMO.

Gas ready and future proof

From the very start of the development process Al Muraykh and the other vessels in the A19 series have been optimised for economy and the lowest possible fuel consumption, which in turn will lead to lower emissions. Through all the stages of their development, UASC, Technolog Services and HHI, as well as the other main suppliers, have been involved in the optimisation of the vessels. This includes an optimised hullform, and a ship-to-shore power supply solution for zero emissions at berth. What sets these vessels apart from other ULCVs is that they are gas ready and could at some future date be retrofitted in order to run on liquefied natural gas (LNG). At an early stage UASC decided that LNG would be the preferred option, rather than investing in scrubbers and selective catalytic reduction (SCR) technology. The company is among the first vessel owners in the world to plan its newbuildings for LNG retrofitting and is the largest container line to do so. This decision has made it the potential market leader for LNG as a ship fuel because of the size of the vessels that could now be run on it. Al Muraykh and the other ships in its class are the first vessels to receive DNV GL’s Gas Ready notation. The shipping industry considers LNG to be one of the most important alternative fuels because of its potential to help reduce shipping’s impact on the environment. Any vessel operating on LNG will greatly reduce its NOx, SOx and particulate emissions and it will also help to reduce CO2 emissions. LNG is not, however, a commercially viable alternative at present, and it will not be viable until it can be offered below the current price for heavy fuel oil (HFO). At present for certain ship types LNG can be as much as 30 per cent more expensive. According to DNV GL, LNG is likely to be the most commercially attractive fuel option from 2020 when the price of low sulphur HFO and marine gas oil (MGO) is expected to be higher, and given the long-

term availability of natural gas. LNG as a fuel has characteristics that have an impact on a ship’s design. Notably, it has half the density of diesel fuel, so larger storage tanks are required for the same cruising range. As LNG is not stored at high pressure the tanks can be positioned below deck. This is unlike compressed natural gas (CNG), where the tanks are at high pressure and are therefore positioned on deck – as seen in the Marlin class of new gas fuelled ships for the US carrier TOTE that were launched last year. As LNG is a liquid only at cryogenic temperatures (-163°C) it requires special storage tanks, pipe systems and handling as it will slowly evaporate when stored. Additional systems are required in order to deal with the boil off gas, as venting to air is not allowed. Al Muraykh has been designed for future conversion to LNG via retrofitting. During the design process it became obvious that the most suitable location to install the tanks would be in the cargo hold directly in front of the engineroom, as this would require shorter pipe system routes to the LNG tank. An IMO Type B tank will have the greatest stowage density, compared to a smaller cylindrical Type C tank. A Type B tank would also be adjustable to Al Muraykh’s hull shape, ensuring that fewer container slots are lost. The LNG plant design has been approved in principle and was obtained from DNV GL, with technical co-operation between UASC’s newbuilding team, HHI, Hyundai’s Engine & Machinery Division, and Japan Marine United Corp for the SPB (self-supporting prismatic shape Type B) LNG tank. Al Muraykh is deployed on UASC Asia Europe Container Service 1 (AEC1) that it operates with its Ocean Three alliance partners. The service has the port rotation Qingdao–Shanghai–Ningbo– Yantian–Xiamen–Port Kelang–Felixstowe– Hamburg–Rotterdam–Zeebrugge. On 16 December 2015 it sailed from Port Kelang bound for Felixstowe carrying a record 18,601 teu which to date is the largest number of containers carried on board any vessel at any one time. It was diverted to London Gateway and arrived on 1 January 2016. CST *Initially UASC stated that Al Muraykh and its sisters were the A18 class, but this has recently changed to A19. In order to be up to date this article lists them as the A19 class.

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July 1976 UASC was established

Ocean Three alliance UASC is a member

US$2.5 billion The amount UASC’s shipbuilding contract for 17 ships is worth

17 ULCSs Comprises 5 x 15,000 teu and 5 x 18,800 teu ships, with options for one more 18,800 teu and six more 15,000 ships (exercised)

Barzan First 18,800 teu ship delivered April 2015; Al Muraykh is the second

Container Shipping & Trade | 1st Quarter 2016

14 | TRADE ROUTE transatlantic

Overcapacity sends dark cloud over transatlantic stability The traditionally balanced transatlantic trade has tipped as a result of the cascading of larger vessels into this market

NORTH AMERICA TO EUROPE - TEU Q1 691,200 Q2 732,000 Q3 669,000 Andrew Abbott (Atlantic Container Line): â&#x20AC;&#x153;It is ridiculous for so many lines to want to carry boxes at an outright lossâ&#x20AC;?

DECREASE

2014

2015 Q1 631,200 Q2 685,800 Q3 649,400

transatlantic TRADE ROUTE | 15

medium-term,” he adds. Shipping lines pulled capacity out of the market and this helped to halt the falling rates. Indeed, as Drewry Maritime Research’s Container Insight Weekly said; “A combination of suspended services and void sailings from November has seen carriers reverse some of the unwarranted second quarter capacity injections.” It said that the monthly slot availability for January 2016 was just five per cent above the same month in 2015 for the westbound leg, and down by one per cent for the eastbound leg. Previously, the annual comparisons had been in the high double-digit range. But the concern is what will happen when services are resumed, such as the suspended G6 Alliance AX4 and the 2M TA4/ NEUATL4 loops which are expected to be relaunched in late April. Drewry points out that this could potentially bring the total available slots back to the same leve as Q3 last year. It summed up: “We expect spot rates in the transatlantic to continue their gradual erosion, which might get steeper if too much capacity is returned after the seasonal suspensions.” The latest figures from Container Trades Statistics (CTS) show that total volumes for the first three quarters of last year from Europe to North America (the USA, Canada and Mexico) were 3.1 million teu, a growth of 6.9 per cent compared with the same period in 2014. Delving deeper into the figures, volumes fell in the third quarter by 1.5 per cent compared with the preceding second quarter (see table 1). Fourth quarter data was not available at the time of writing. Volumes the other way saw cargo liftings for the first three quarters of 2015 combined drop by 6.6 per cent to 1.96 million teu year on year, according to the CTS figures. The 649,400 teu moved in the third quarter of 2015 was a drop of 5.3 per cent compared with the second quarter of 2015 and of 5.9 per cent compared with

EUROPE TO NORTH AMERICA - TEU

2014

2015

Q1 901,700

Q1 976,200

Q2 989,800 Q3 1,013,300

Data source: Container Trades Statistics Map by Free Vector Maps

INCREASE

he traditionally stable transatlantic trade has lost some of its balance as a result of the cascading of larger vessels into its trade lanes last year, forcing rates down and creating overcapacity. Atlantic Container Line (ACL) president and chief executive Andrew Abbott highlights the destabilising effect that the cascading of larger ships into the trade has had. “The Atlantic trade in January last year was perfectly balanced. It had perfect supply and demand and rates were stable. Then the big shipping lines decided to cascade bigger ships in from Asia. They added 30 per cent of capacity to the trade and basically destroyed it overnight. When rates went into free fall last summer, the big alliances pulled out half the added capacity in November. I am not sure if they are going to bring some of it back or not.” He bemoans the situation. “The market was great, then it got terrible, and right now it is stable, but at a much lower level than it should be. I am seeing freight rate prices in the eastbound direction that are below handling cost. It is ridiculous for so many lines to want to carry boxes at an outright loss.” ACL has been sheltered from the worst of the impact because it tends not to do business with high volume customers – the area where the rates have fallen the most. Looking ahead, Mr Abbott comments: “While the trade has stabilised a bit, if you look at the worldwide picture Europe shows no major signs of resurgence. The US economy is ticking along ok, but it cannot survive in a vacuum, and unless Europe and Asia pick up, the US will eventually slow down again. The picture right now does not look rosy at all, and the shipping lines that have the biggest capacity will suffer the most.” Vessels in the transatlantic trade are generally around 3,0005,000 teu, but larger ships of 7,000-8,000 teu have been phased in from Asia. Mr Abbott says: “All it has done is mess up the supply and demand balance. People are building more mega-ships for Asia so the cascading will continue. We can survive because we are small enough to be selective about our cargo. We are much more diversified, carrying containers, cars and roro, and we have a very low cost operation. But I am afraid that most lines will see their balance sheets go into the red this year.” He adds: “Logic says that the global operators will not want to lose money in every trade after doing so in Asia, so I do not think Atlantic rates will go much lower. But with worldwide overcapacity continuing, we will not see any profitability rebounds in the short or

Q2 1,087,200 Q3 1,070,500

16 | TRADE ROUTE transatlantic

the third quarter in 2014. CTS’s Tier 1 aggregated price index, which has a baseline of 100 points, shows that Europe to North America trade ended 2015 with a figure of 92 for December. This was weaker than the months from June onwards. In June it reached 96, rising to 97 in July before going back to 96 in August and achieving levels of 93, 95 and 95 for September, October and November respectively. The North America to Europe Tier 1 aggregated price index for North America to Europe was much lower, slumping to 78 points in December. After starting the year at 90 points in January, and climbing to 92 in April, the points trailed off, going down to 84 in September and October, then falling again to 80 in November.

The double-whammy of over capacity and the weaker European economy explains the decrease in some of the volumes and in the price index. Dean Davison, principal consultant at Ocean Shipping Consultants, part of Royal HaskoningDHV, comments: “The transatlantic is currently a tale of two trades. The eastbound route is weaker, impacted by the state of some of the key European economies affecting demand. By way of comparison, the westbound is healthier and stronger, which reflects the current economic position in the USA. I expect 2016 will be more of the same, with these overall trends likely to continue.” And while he singled out the challenges presented by cascading, he believes that the transatlantic is still stable compared with other trades. “There will also be a continuation of other noted industry factors. Ship cascading will continue, and there will be some over capacity, as there is in all trades. As a result, the freight rates are likely to be impacted. However, it is still Providing stevedoring & terminal operations a stable trade, especially in comparison in more than 42 U.S. ports and 80 locations with other major routes which are clearly much more unstable. So I expect the transatlantic will continue to be a route that the major liner companies remain Port Canaveral Baltimore Galveston interested in serving.”

COVERING ALL COASTS

Baton Rouge Bayonne Beaumont Boston Brunswick Camden Charleston Concord, CA Coos Bay Corpus Christi Crockett Davisville Freeport

PortsAmerica.com

Gulfport Houston Jacksonville Long Beach Longview Los Angeles Miami New Orleans New York Newark Olympia Philadelphia Port Arthur

Port Everglades Port Hueneme Portland, ME Providence San Diego Savannah Sunny Point Tacoma Tampa Vancouver, WA Virginia Wilmington, DE Wilmington, NC

Atlantic Star debuts

Atlantic Container Line’s (ACL’s) innovative new conro ship Atlantic Star made a “very auspicious start,” according to its owner, when it went into service in mid December 2015. The entire ship was filled with cargo at a time which is normally quiet. “Our customers wanted to put their cargo on a brand new ship. It was a very auspicious start,” observed ACL president and chief executive Andrew Abbott. Atlantic Star is the first ship in a series of five to enter service. The second is expected to be delivered in March and the final three will be phased in every two months afterwards. They will replace ACL’s entire fiveship fleet, which has been in operation since the mid 1980s. Since the arrival of Atlantic Star, Atlantic Companion has been sent for scrap. The new fleet is bigger, faster, more efficient and greener than the current one. At 3,800 teu the G4 vessels have double the capacity of the older G3 ships but share the same footprint. Mr Abbott says: “On the container side we have the same general dimensions but double the capacity, which means that we are getting an extra 1,900 teu for the same price.” But it is on the roro side that the major changes can be seen. The new ships were designed with cargo handling in mind. The roro

transatlantic TRADE ROUTE | 17

decks have only one set of centre columns, while the decks on the older vessels have two or three. “Those multiple columns required a lot of manoeuvring in order to park cargo, and so stowage is a lot easier on Atlantic Star. Also, the main roro decks are midships, so the ramps up and down are much shallower, making cargo handling much faster and easier. In the old G3 ships the ramps were steeper, and it was much harder to get heavy cargo up and down. With the very shallow G4 ramps, you can carry virtually everything,” explains Mr Abbott. Furthermore, the car decks on the newbuild are much higher, at over 2m, compared with 1.6m on the older ships. “This means that we have no restrictions on high-sided sports utility vehicles and minivans, as we had on the G3s.” Since the main roro deck can accommodate cargo up to 7.45m high, the vast majority of oversized cargo can receive safe, dry stowage for its transatlantic delivery. The new ships are leading to some service changes. First, their size means that ACL can increase its swap arrangement with Hapag-Lloyd. This co-operation has been in place since 1984, and sees the two companies swap slots of 550 teu. HapagLloyd takes space on every ship, while ACL spreads its slots over a number of Hapag-Lloyd services. “We are increasing our slot swap arrangement up to around 1,000 teu, to be spread out over a wider geographical area,” says Mr Abbott. The new ships are also likely to have an influence on the ports used by ACL. Mr Abbott indicated that the company was interested in adding a South Atlantic port to the sailing rotation, but emphasises: “We are going to wait until October to see what happens with the performance of the new ships and cargo demand in our current ports before making any changes. In order to add a South Atlantic port, we would have to drop one from our current rotation. We have to be sure that the change is for the better. We are going to think long and hard before making changes.” Summing up the impact that the new ships will have for ACL, Mr Abbott says: “We have not grown at all since our original ships came into service in the 1980s, despite the market growing. But now we can allow ourselves to gradually grow into the market as the ships are so much more efficient. Today, we really do turn away a lot of business as we just do not have the capacity. Now it will be a different picture. We can say yes to a 300 container shipment rather than no.” He said that the new fleet will increase ACL’s market share of the transatlantic trade from 4.5 per cent today to between 8 and 9 per cent in the future. CST

ATLANTIC STAR MAIN PARTICULARS

Cargo access equipment (ramps, doors, hoistable decks, cell guides): MacGregor Exhaust cleaning for main engine/scrubber: Alfa Laval Prime mover, shafting, propeller and rudder arrangement: Wärtsilä, Becker Auxiliary engines: Yanmar

18 | CUSTOMER PROFILE

GSF WARNS: STATES MUST ACT NOW ON CONTAINER WEIGHING TO AVOID SUPPLY CHAIN DISRUPTION MANDATORY CONTAINER WEIGHING, MARKETBASED MEASURES FOR CO2 EMISSIONS AND MEGA ALLIANCES ARE AMONG THE MOST PRESSING ISSUES FOR THE GLOBAL SHIPPERS’ FORUM

ontainer weighing, market-based measures to deal with CO2 and the emergence of ocean carrier mega alliances have kept Chris Welsh, secretary general of the Global Shippers’ Forum (GSF) very busy.

NO TIME FOR DELAY

Indeed the container weighing regulations loom large as they are due to take effect globally on 1 July 2016. The amendments to the SOLAS (Safety of Life at Sea) Convention require packed shipping containers to have a verified gross mass (VGM) before they can be loaded on a ship for export. It is something that GSF

Ultra large container ships and mega alliances are a large focus for GSF

Container Shipping & Trade | 1st Quarter 2016

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CUSTOMER PROFILE | 19

has been involved in from day one at the International Maritime Organisation. As Mr Welsh explains to Container Shipping & Trade: “We worked constructively with stakeholders, and with their support, helped shape the legislation – most notably in securing support for a “calculated weight” compromise proposal." Indeed, “no sooner had the ink dried on the final decision”, GSF has worked with stakeholders to figure out the best way to meet these requirements. The GSF, working with its UK member, the Freight Transport Association, recommended the establishment of a working group involving all stakeholders including the UK Maritime Coast Guard Agency to develop an accreditation scheme for shippers to use the calculated method approved by the IMO. This has been crucial, because as Mr Welsh highlights: “This is one of those issues which on the face of it sounds very simple. Shippers should know what the accurate weight of their containers are. Indeed, even though the new container rules come into play on 1 July, there has always been a legal requirement under SOLAS for shippers to make accurate declarations; this legislation however gives clarity to how this should be done and the responsibilities of the stakeholders”. But all is not as it seems, because while as Mr Welsh says, this appears to be a “no brainer”, he highlights that it is a “lot more difficult and complex when looking deeper, largely because of how the supply chain works”. Mr Welsh explains: “The UK working group has worked constructively to find a pragmatic solution to implementation in the UK, and the proposed accredited scheme has been highly influential internationally. For example, the approach in accepting shippers existing audit based systems upon which to make accurate VGM declarations have been accepted by other European countries such as France, Germany and Netherlands. The approach has been highly influential in implementation approaches adopted in New Zealand, South Africa, Australia and Canada.” But there are still challenges: large parts of the world have yet to determine their enforcement and implementation approaches for verifying container weights. Mr Welsh warns: “And there are concerns about whether many regulatory authorities will be ready by 1 July 2016. It is imperative that these states get their act together as soon as possible to ensure there is a seamless transition

towards implementation of the new VGM regime to avoid disruption in the maritime supply chain.” He said that is why GSF is working together with various maritime supply chain stakeholders, such as the TT Club, International Cargo Harding Coordination Association and World Shipping Council to ensure the stakeholders are aware of their responsibilities and are fully prepared for implementation from 1 July 2016. GSF, TT Club, ICHCA and WSC have jointly produced a Frequently Asked Questions guide which is available on the GSF website. Explaining how GSF would deal with these challenges, he said: “We will intensify our communications in the lead up to 1 July, keeping a high profile in the media and produce best practice advice for shippers explaining their responsibilities and how to comply." He warned there was no time to delay – that shippers and the rest of the maritime industry need to be preparing now, if they are to be ready for 1 July. "With less than six months to go shippers need to decide what is the best method for providing the VGM and to be talking to their carriers, forwarders, and hauliers to go through the practical logistics arrangements concerning compliance. As they dig into it, they will realise the complexity of the issue and range of choices open to them in terms of their VGM approach and will communicate this to the carrier. For carriers, there is also a responsibility to assist their customers in complying with the rules. Commendably, many carriers are providing information on their websites." But he said that the carrier community needs to reach out to customers and put in place contingency plans for shipments presented to terminals without a VGM. For example, Mr Welsh said that for every booking made from 1 July onwards, when confirming the booking the carrier could remind the shipper they will be required to make a VGM declaration, otherwise the container will not be loaded on the ship. "These are the kind of common sense contingency planning arrangements that will be necessary to avoid short-shipped consignments, delays and problems at the port terminal to ensure a smooth transition to the new regime," Mr Welsh said.

PUSH FOR SINGLE IMO CO2 MEASURE

Aside from container weighing, the GSF has called on the shipping industry to reach agreement on clear targets

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Chris Welsh MBE Chris Welsh was appointed secretary general of the Global Shippers’ Forum with effect from 1 July 2011. From 1996-2002 Mr Welsh was secretary general of the European Shippers’ Council where he played a prominent role in deregulating EU shipping and air cargo markets, spearheading a series of successful maritime legal cases which culminated in the repeal of anti-trust immunity for liner shipping conferences in trades to and from Europe in 2006. Mr Welsh has held a variety of senior management roles with the UK’s Freight Transport Association (FTA), and is currently director of global and European policy. In 1992 he established FTA’s Brussels operations and in 2010 he set up FTA Ireland, an independent multimodal logistics trade association for Irish shippers and logistics interests. Mr Welsh holds a master’s degree in business administration, and is a chartered member of the Chartered Institute of Logistics and Transport and a member of the Chartered Management Institute.

Chris Welsh was awarded an MBE in the 2015 Queen’s Birthday Honours for services to shippers and the shipping industry

“There are concerns whether many regulatory authorities will be ready by 1 July 2016. It is imperative that these states get their acts together as soon as possible to ensure there is a seamless transition towards impementation of the new regime”

Container Shipping & Trade | 1st Quarter 2016

20 | CUSTOMER PROFILE

for maritime emissions reductions – something that has gained even more momentum since the COP21 climate change talks. The GSF has released a statement outlining its views on how the maritime sector should address the issue. “We are concerned about what kind of MBM may be adopted in the future and how it will affect shippers. An international agreement on this through IMO would be best. However, developing an appropriate response to maritime emission reductions has been slow and no agreement has been reached in IMO. The shipping industry was open to considerable criticism in COP21, whether justified or not. Perceptions count for a lot. Unless the process for an agreed solution is speeded up, it is likely to lead for calls for tougher action and for the matter taken out of the hands of IMO altogether,” Mr Welsh commented. Indeed, the EU is already proceeding with its own Monitoring, Verification and Reporting system in absence of an IMO agreement. Mr Welsh said that the hope was the EU will prompt a satisfactory outcome in IMO. “The EU has made it clear if agreement can be reached at IMO to its satisfaction it would modify its own arrangements to comply with the international agreement but the bottom line is, if they can’t reach agreement it will go it alone,” he added.

MEGA ALLIANCES COMPETITION WATCH Elsewhere, concerns about the mega ship and shipping alliances has formed a large focus for GSF. Mr Welsh explained: “Providing these alliances do not lead to elimination of competition and that the benefits are genuinely passed on to shippers – through for example a better range of and enhanced services and a share in the benefits of reduced costs – it may not all be bad news. Our main concern is whether existing competition policy and regulatory arrangements are sufficiently robust to deal with the new breed of alliances and co-operation agreements. Shipping is still treated differently to the rest of the economy when it comes to the assessment of co-operative agreements such as alliances, and regulators are too ready to assume that such alliances confer benefits to shippers without more carefully studying the impact. The recent publication of the

OECD report on mega ships is a good example of the kind of independent assessment needed in this area." Indeed these concerns have led to GSF to launch an analysis on the subject – a large part of which is focused on the competition element. Mr Welsh said: “There are arguments on both sides of the debate, about whether alliances in the long term benefit shippers and carriers, or whether it would be better if there was greater merger and acquisition, leading to fewer players competing head on with each other rather than collaborating in alliances.” This is one of the areas that the report – due to be published in spring this year – is studying. Mr Welsh explained: “There is a need for competition analysis and what more competition authorities and regulators should be looking at in these areas, which is why we are publishing a report which we hope will form the basis of a calm and level headed discussion with the shipping industry and regulators.” In 2011 GSF member, the Freight Transport Association, urged the European Commission to investigate the possibly of price signalling through the publication of general rate increases. The increases were for similar amounts over similar time frames. Following a three-year investigation the European Commission recently published a communication in the Official Journal of the EU confirming that the lines have offered commitments to the way prices are announced. Mr Welsh said that the GSF welcomes the Commission bringing this case on liner shipping prices to a satisfactory close. The GSF, like the FTA, welcomes the Commission’s commitments decision and believes this will introduce a degree of transparency into maritime transport pricing for the first time. “We welcome the fact the lines have agreed that they will cease to announce general rate increases and publish the actual prices made available to customers on an individual basis,” said Mr Welsh. He summed up: “Shippers will respond to the Commission’s ‘market test’ consultation to ensure that the arrangements contribute towards a more rational, transparent and appropriate pricing system which is long overdue following the removal of the liner conference anti-trust immunity in 2008." CST

Container Shipping & Trade | 1st Quarter 2016

CONTAINER WEIGHT COUNTDOWN 1 July 2015 The day regulation comes into effect requiring containers to have a verified gross mass before they can be loaded on a ship.

Accredited Shipper Approval Scheme FTA and other stakeholders developed an accreditation scheme for shippers using a calculated weight method of verification.

Two methods of verifying weight Weighing the packed container using certified and calibrated equipment or using a calculated weight method that adds up individual items separately, and then adds the tare weight of the container and packing materials, using an approved process.

Audit-based systems Shippers can use their existing audit based systems to comply with the new rules.

Accreditation success The scheme is successful in the UK, and has been been accepted by other European countries. It will also influence container weight verification in New Zealand, South Africa, Australia and Canada.

Verification approach not uniform It is still unclear in some countries what approach enforcement authorities will take to verifying container weights. Concern that procedures are not yet in place to make the transition to a new regime.

Shippers must act Less than four months to go and shippers who are not ready for new regulation have a lot to focus on, from communication systems to contingency plans.

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22 | OPERATOR PROFILE

Hyundai on the precipice 6.6% 48.6% 17.3%

PERCENTAGE OF LINER REVENUES

27.5% 7.1%

39.8%

29.4%

PERCENTAGE OF LINER VOLUMES

23.7% LANES Asia-Europe

Intra-Asia

Transpacific

Emerging

Figure 1. (Source: HMM nine-month results 2015)

Container Shipping & Trade | 1st Quarter 2016

t is often said that the lead up to a maritime accident can take a very long time, but when the accident actually takes place everything suddenly seems to move very fast. It seems to be the same with shipping companies, if the recent troubles besetting Hyundai Merchant Marine (HMM) are anything to go by. Crunch time is fast approaching for South Korea’s second largest shipping line, as lenders and the company’s senior management and major shareholders are going to have to make some urgent decisions, soon. It has been known for some time that HMM has had problems with its balance sheet – after all, there are only a few liner companies that can genuinely claim not to have had financial concerns over the past five years – but these appear to have reached a head in the last few weeks. Shortly before this issue of Container Shipping & Trade went to press, container and dry bulk shipowners and ship brokers that have worked with the company received a letter that has sent shock waves through the industry. “Liquidity has deteriorated to the point where HMM cannot operate without relief from the shipowners and creditors and needs to restructure in order to survive,” wrote HMM chief executive Paik Hoon Lee. He continued: “It is critical to understand that HMM’s financial difficulties cannot be solved by dealing

South Korea’s second largest carrier says it needs to restructure debt and vessel charter fees in order to avoid bankruptcy, writes Gavin van Marle

with its financial liabilities alone. Unless time-charter payments are significantly reduced as well, the company cannot survive. “We envisage a consensual restructuring, in which all of our stakeholders will make an equitable contribution to the recovery of the company.” He also admitted that this will entail the company’s current shareholders seeing their existing shareholdings “significantly diluted.” HMM’s present predicament is the culmination of several years of prolonged financial difficulties. A first turn-around attempt was made in 2013, when the Hyundai Group formulated what it described as self-help plans and began a series of asset disposals and capital raising exercises. It also introduced a new operational cost savings programme, which provided its container shipping division with an estimated KRW3,582 billion (US$2.97 billion) in additional liquidity. But it has proved insufficient, as liner shipping analyst Alphaliner explains. “HMM is currently struggling to stay afloat in a liquidity crunch. To improve its balance sheet, HMM seeks to raise much-needed cash through the sale of various assets, including Hyundai Securities, its dry bulk shipping business, its US container terminals, and the remaining stake in Busan New Port Container Terminal. “HMM’s financial position

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OPERATOR PROFILE | 23

remains precarious due to continued losses incurred by the container shipping business, and due to KRW521 billion (US$432 million) worth of loans that will mature in April and July this year. The carrier may be forced to seek court receivership should it be unable to secure creditors’ agreement to restructure debt.” According to Freight Investor Services container derivatives broker Richard Ward, the most recent numbers show that at the end of April HMM will be required to repay one tranche of debt amounting to of KRW220.8 billion (USD$182.2 million), followed by a further repayment of KRW299.2 billion (US$249.5 million) at the end of July. Mr Lee’s letter admitted that, should creditors and shipowners not agree to new terms, the line was likely to head towards Korea’s bankruptcy court. However, shortly after the letter’s release came confirmation from financial circles in Seoul that both KB Financial Group and Korea Investment Holdings Co have sent letters of intent to buy a controlling stake in Hyundai Securities. The 22.6 per cent stake is reportedly worth KRW300 billion (US$250 million) and could provide a much needed boost to cash reserves. It is also understood that Hyundai Group chairwoman Hyun Jeong Eun will stump up KRW30 billion (US$24.4 million) of her private fortune to further prop up the company. Mr Ward comments: “It is clear that the Korean line has been scrambling to raise cash as it looks for some short-term relief from its liquidity woes. However, the revelations from senior management about the gravity of the situation will do little to calm any nervousness there may be about whether the liner should be treated as a going concern.”

According to the latest data from Alphaliner, HMM operates a fleet of 55 container ships with a total capacity of 393,665 teu. Some 33 vessels of its fleet are chartered, representing capacity of 228,585 teu. Among the chartered vessels are five 13,100 teu ships fixed on long-term charters with Greek owner Danaos Corp, which are set to last until 2024. In addition to these, Danaos has seven 2,200 teu vessels chartered out to the carrier with between one and two years left of their terms. The New York Stock Exchange listed shipowner recently reported its 2015 fourth quarter and full year results, in which it recorded an adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) of US$418.3 million for 2015, a 3.5 per cent increase on US$404 million adjusted EBITDA in 2014. And as of the beginning of 2016 it had contracted operating revenues of over US$3 billion, with charters of up to 12 years. Danaos chief executive John Coustas admitted that the problems afflicting the container shipping industry were serious, but claimed that the company’s long-term charter strategy insulated it from its customers’ difficulties. “Danaos has very limited exposure to the current weakness in the market. As of the end of 2015, the average charter duration of our fleet was 7.2 years, weighted by aggregate contracted charter hire, with our longest charters extending through to 2028. “This equates to contracted operating revenues of US$3.2 billion and charter coverage of 95.2 per cent in terms of operating revenues in 2016, assuming continued performance by our charterers on existing contracted terms,” he says. That last phrase is revealing considering HMM’s current

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woes and in the context of another of Danaos’ customers, Zim Line. In 2013 Zim underpaid charter hire on six Panamax vessels which had been chartered out to the Israeli carrier until 2020, claiming it was a temporary measure until the markets improved. When the recovery failed to take place, Danaos became an unwilling partner in Zim’s US$1.4 billion debt-forequity swap in 2013. It had to write off US$19 million in its annual results that year, relating to reduced charter hire on the vessels. Danaos had every right to take the vessels back, but such was the depressed state of the charter market for Panamax ships that it decided against doing so. This further underlines the fact that the fortunes of non-operating owners are inextricably linked to how carriers are faring, regardless of the lengths of charters. The problem is not simply the fact that HMM continues to make losses, but that everything it does is overshadowed by its huge debt mountain. Compared to some of its counterparts its losses are not too bad. In the first nine months of 2015, of the 14 publicly listed container lines worldwide it came ninth in the profitability stakes, posting a third quarter operating loss of US$45 million. It also managed

to achieve the highest revenue per lifting, at US$1,292 per teu, although that was down 14.2 per cent on the US$41,506 it received the year before. The figure one data illustrates the point that while operators will blame flat volumes and wild freight rate volatility on the Asia-Europe trades for their woes, carriers such as HMM should be paying more attention to what is happening in their own back yard. Freight rates in the previously stable intra-Asia trade have suffered a calamitous decline over the past year as the trade has begun to be infected by the volatility elsewhere. The one obvious solution for HMM is to reconsider the idea of merging with its compatriot Hanjin Shipping Co, which is undergoing a financial restructuring of its own. The idea was mooted by South Korean Government officials last year but little substantive progress was made. Now that the pressure is even greater, perhaps they will give it more serious consideration. “Currently, neither of the two Korean companies has the financial resources to proceed with new orders for large container ships on its own. Such next-generation vessels would allow HMM and Hanjin to compete more effectively with their peers,” Alphaliner says. CST

Hyundai Dream is one of the largest vessels in Hyundai Merchant Marine’s fleet at 13,100 teu – but the company will need to invest in larger tonnage to remain competitive

Container Shipping & Trade | 1st Quarter 2016

24 | ASIA ports

GEARING UP FOR THE MEGA SHIPS THE LAUNCH OF ULCVS HAS BOOSTED TRANSSHIPMENT DEVELOPMENT IN ASIA PACIFIC PORTS

ontainer port trends in the Asia Pacific region are a mixed bag. Volumes growth in China is slowing but there is still plenty of potential, while a strong increase in throughput can be seen in terminals in southeast Asia and elsewhere, such as Busan. And the deployment of bigger ships is shaping the strategies and development of Asian ports. The latest throughput figures for the top 10 ports in China show that collectively their volumes grew by 4.2 per cent year on year to 146.5 million teu between January and November 2015, according to figures from the China Container Terminal Association. Shanghai continued to claim the top spot, with 33.5 million teu, a year-on-year growth of 3.3 per cent. Shenzhen was at number two, with a growth of just 1.4 per cent, to 22 million teu – and its throughput for the month of November was down by 3.2 per cent year on year. Tianjin saw its throughput fall by 1.2 per cent during the 11 month period, and Dalian saw an even bigger fall – its volumes slumped by 5.3 per cent. Tianjin’s volumes have been affected by the explosions there in August last year. The ports that saw the strongest growth include Xiamen, which saw the fastest growth at 7.5 per cent compared to the same period in 2014, Ningbo-Zhoushan, with a jump of 6.5 per cent and Guangzhou at 5.8 per cent. Commenting on the market, Kris Chang, DP World’s managing director for China, tells Container Shipping & Trade: “Although the

market is slowing down in China, we are still expecting reasonable growth and we will continue to invest in line with market demand.” Commenting on DP World’s investments in China, he says: “For Qingdao and Yantai, we have encountered a softened market but maintained slower growth for both the international and the domestic market. In Qingdao, we are investing in two additional fully automated berths which will further improve efficiency for our customers. The new berths are expected to be operational by 2017.” Qingdao saw its overall container throughput grow by 4.2 per cent to 15.8 million for the first 11 months of last year, according to the China Container Terminal Association. While growth in China has slowed, at Busan port in South Korea container throughput, especially transshipment, has advanced strongly. Transshipment cargo has been forecast to exceed direct cargo last year for the first time, in 2015. The port estimates that it achieved 19.45 million teu, of which 9.34 million teu was local cargo and 10.11 million teu was transshipment cargo. These numbers were up by 0.9 per cent and 7.3 per cent respectively from the year before. The port is on track to handle 20 million teu in 2016. Indeed Busan Port Authority (BPA) has set its sights on becoming a global integrated logistics company. To this end at the start of this year it launched an international business division tasked with finding potential investment areas around the world. Jinsun Shin, general manager of BPA’s European representative office in London, told Container Shipping & Trade exclusively: “We want to be a global terminal operator in the future and make investments overseas. We need to diversify our portfolio. In a globalised industry it does not make sense not to diversify our portfolio and go out worldwide. “We will look at becoming a shareholder in a terminal and various types of logistics facilities, or operating a terminal ourselves, or entering into joint ventures with logistics companies.

Transshipment cargo is forecast to exceed direct cargo in 2015 for the first time at Busan Port

Container Shipping & Trade | 1st Quarter 2016

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ports ASIA | 25

Once the international business division finds areas of interest, we will carry out feasibility studies and if these show that there is potential, then we will go into the market.” She said that the strategy was to create a worldwide business network based on Busan Port, thereby developing Busan into a global transshipment hub, with cargo from Busan’s areas of investment being fed into the South Korea port. The newly created international business division is looking around the world for potential areas of interest, but Ms Shin singled out the emerging markets of southeast Asia such as Cambodia and Vietnam, Iran, South America and Africa as being of particular interest. She explained: “Container throughput between Africa and Asia is increasing, but it is very small compared to the east–west trades. And African port facilities are still very weak and find it hard to accommodate the big vessels, which are being cascaded into its trades. It would be a good opportunity for Busan to invest in or operate a terminal there, both improving facilities and enhancing capacity.” Ms Shin also singled out South America as being a good option. “Cargo between South America and Asia has increased, especially transshipment, so South America would be a really good market for Busan to invest in.” She said that north China was a strong transshipment area for Busan, making it another potential area of interest. The growth of transshipment is a key trend for major Asia Pacific ports. Dean Davison, principal consultant at Ocean Shipping Consultants, part of Royal HaskoningDHV, commented: “I certainly think that the continued introduction of larger ships into service generally, and the growth of more transshipment at hub ports – because bigger ships mean fewer ports being called – is helping drive up traffic for some facilities. I think some of the big hub ports in the region are definitely big ship ready, while some of the smaller facilities still have some way to go. “However, I do think there will be a growing shift towards greater use of transshipment, where possible. Some growth in feeder ship sizes is also likely and the smaller ports have to be ready for this, too.” The growing size of ships is an important consideration for Westports Malaysia in Port Klang, too. Ruben Emir Gnanalingam, Westports Malaysia chief executive, told Container Shipping & Trade: “The new trend for the last few years has been the growth in the largest vessel size and also the average vessel size. As we try to be supply driven, we have to remain conscious of these trends in order to ensure our new development phases can cater to them. We are also seeing more alliances happening and are making sure we stay relevant to these alliances going forward.” Westports handled 9.05 million teu last year, a jump of 8 per cent compared to the 8.47 million teu handled in 2014. The operator is building a new container terminal at Port Klang, CT8. This is a major focus for the port. Mr Gnanalingam said: “We have always been supply driven and have a benchmark for starting development. We hit that threshold in 2014 and that is why we started the development of CT8 in 2015. Our capacity will grow from the current 11 million teu to approximately 13.5 million teu when CT8 is fully complete in 2017.” He added: “Our main focus for 2016 will be to continue the development of CT8. We expect to open up 300m of wharf and to receive four additional quay cranes this year. We are also doing a lot of research into automation which we hope to introduce in either 2017 or 2018.” CST

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CHINA Rank

1 2 3 4 5 6 7 8 9 10

Port

Shanghai Shenzhen Ningbo-Zhoushan Qingdao Guangzhou Tianjin Dalian Xiamen Yingkou Lianyungang Total

January to November 2015 TEU '000 Year on year % 33,471.3 22,217.3 19,151.2 15,873.6 15,673.8 12,815.5 8,788.6 8,379.2 5,550.2 4,545.4 146,466.1

3.30% 1.40% 6.50% 4.20% 5.80% -1.20% -5.30% 7.50% 5.00% -1.20% 4.20%

Source: China Container Terminal Association

SOUTH KOREA Busan port 2015 VOLUMES 2015 TRANSSHIPMENT 2015 DIRECT CARGO 2016 TOTAL TARGET

19.45 million teu up 7.3% year on year up 0.9% year on year 20 million teu

AIM: to become a global integrated logistics company in the future in order to make Busan a global transshipment hub AREAS OF INVESTMENT INTEREST: Cambodia, Vietnam, Iran, South America and Africa

MALAYSIA Westports Malaysia 2015 VOLUMES • 9.05 million teu, up 8 % on 2014 Westports achieved its target of 5-10% volume growth NEW TERMINAL CT8 • completion date 2017 Capacity will grow from 11 million teu to 13.5 million teu CT8 DEVELOPMENT 2016 • open up 300m of wharf • add four more quay cranes • hope to introduce automation in 2017/18

Container Shipping & Trade | 1st Quarter 2016

26 | ASIA analysis

COSCO SET TO CONTROL

CHINA SHIPPING THE MERGED CHINA SHIPPING AND COSCO CONTAINER SHIPPING UNIT IS LIKELY TO BECOME THE DOMINANT CARRIER IN THE CKYHE ALLIANCE by Gavin van Marle

n late January one of the more notable board meetings in the history of Asian shipping took place in China when the first executive board meeting was held for China Cosco Shipping Corp, the company that has been established as a result of the merger of China Ocean Shipping (Group) Co (Cosco) and China Shipping (Group) Co. Significantly, the meeting took place under the auspices of the country’s State-owned Assets Supervision and Administration Commission of the State Council (SASAC), the government body that is likely to have been behind the merger in the first place, given that its responsibilities include “supervising the preservation and increment of the value of the state-owned assets of the supervised enterprises.” It is also responsible for the

reform and restructuring of state-owned enterprises, for advancing the establishment of a modern enterprise system in stateowned enterprises, and for improving corporate governance. The merger of China Shipping and Cosco has been on the cards for a number of years, and not just because of the dire state of the container market – after all, most shipping sectors are currently in the doldrums. Another reason is that, when it comes to overloading weak demand with excessive capacity, it is fair to say that Chinese carriers have been in the vanguard. So there was as much genuine reason for the two companies to come together in the dry and wet bulk sectors, as well as other operations, as there was in the container segment. Both have suffered crippling losses in recent years, although in Cosco’s case,

Total capacity operated in TEU

OPERATED FLEET BREAKDOWN BY TRADE 300,000

12%

11%

250,000

COSCON Combined capacity share

CSCL

200,000

Source: Alphaliner

15%

150,000

100,000

50,000

Am er In ic t a c. ra Ch –F in ar a do Eas m t es M tic E/ IS C re la te La d tA m re la te O d ce an ia re la te d Af ric a re la te d In tra –E ur op e Eu r– N. Am er ic a

–N .

(in

–E u

Container Shipping & Trade | 1st Quarter 2016

at least, it was a massive over investment in its dry bulk fleet that precipitated its downward slide. To borrow a Chinese concept, China has suffered a considerable loss of face as a result of the travails of its two flagship shipping companies, and there is a great deal of political pressure to get the merger right. Under the terms of the agreement, the container shipping activities of China Shipping Container Lines (CSCL) have been transferred to Coscon, Cosco’s container shipping subsidiary, and will create the world’s fourth largest container shipping carrier, overtaking Hapag-Lloyd and Evergreen. The combined fleet of the two carriers currently amounts to 1.55 million teu, of which CSCL contributes 694,700 teu and Coscon 852,500 teu, according to data from Alphaliner. The analyst notes that China Cosco Shipping Corp would control 7.6 per cent of global cellular capacity, although it will still be considerably smaller than third-placed CMA CGM. This currently has a share of 8.9 per cent, which is estimated to rise to 11.5 per cent once it subsumes APL. This move is expected by the middle of 2016. The transfer of CSCL’s container vessels to Coscon means that the former will be transformed from a container shipping company into a non-operating container vessel leasing and container leasing company, once the proposed restructuring is complete. It is also set to dispose of its shipping agency and other related container shipping operations to China Cosco Shipping Corp, while its container port assets will be transferred to Cosco’s terminal operating arm, Cosco Pacific. However, CSCL will keep ownership of the container vessels it already owns, and these units will be leased out to China

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China Shipping’s first ULCV, CSCL Globe, will be joined by at least another 17 units of similar size over the next couple of years

Cosco Shipping Corp under new time charter arrangements. CSCL’s owned fleet is made up of 74 vessels of between 4,000 and 19,000 teu capacity, with a total cellular fleet capacity of 580,000 teu. It also has 18 vessels on order and options for five additional units. In fact, taken in combination, the two lines have one of the most aggressive orderbooks in the industry, with at least another 550,000 teu of capacity to be added to the fleet by the end of 2018, depending on the ultimate capacity configuration of the ultra large container vessels (ULCVs). The deal will also see China Cosco Shipping Corp’s market share increase significantly on a number of shipping trades, according to Alphaliner. “The combined Cosco-CSCL company will enjoy an enhanced market share especially on the Far East–Europe, Far East–North America and China domestic trades,” it said. In that context it remains to be determined which alliance the combined unit will decide to operate. CSCL is a member of the Ocean Three alliance with CMA CGM and United Arab Shipping Co (UASC), while Coscon is part of the CKYHE grouping along with K Line, Yang Ming Marine Transport Corp, Hanjin Shipping Co and Evergreen. Alphaliner believes that the smart money is on the combined company continuing with Coscon’s operational arrangements. “Neither carrier has announced the intended alliance participation postrestructuring. Since CSCL will transfer all its container shipping operations to Coscon, the decision would rest with Cosco, which should a priori stick to its current CKYHE membership,” it said in a recent analysis. In its current format, CSCL contributes 323,000 teu capacity to the Ocean Three alliance, while Coscon is the largest carrier in the CKYHE grouping, contributing 490,000 teu to its deepsea east–west services. Adding the CSCL capacity would take its contribution up to 813,000 teu and

lead it to dominate the alliance – of the other partners, K Line deploys 300,000 teu, Taiwanese carriers Yang Ming and Evergreen 310,000 teu apiece, and Hanjin 400,000 teu. The potential to have such influence over its partners must be an incentive for Chinese officials to continue with the CKYHE membership. In contrast, if it were to transfer Coscon to the Ocean Three alliance it would still be junior to the 990,000 teu that is set to be operated by CMA CGM once it completes its acquisition of APL, according to CMA CGM vice chairman Rodolphe Saadé. At the time of the announcement of the purchase he said that he wanted APL’s capacity to be added to the Ocean Three. That would, however, mean APL leaving the G6 Alliance. It is expected to remain part of this alliance until the end of the year. “The CMA CGM-APL transaction remains subject to regulatory approvals, which are expected to take some 6-12 months to secure. Until the deal is fully completed, APL is not expected to serve a notice for its withdrawal from the G6 Alliance. Even after the CMA CGM acquisition is finalised, APL will need to provide a six month notice period to withdraw from the G6 (under a change of control clause in the G6 agreement that allows for a shorter notice period of six months compared to 12 months), which should see the current service arrangement last until the end of 2016,” Alphaliner explains. Of course, the merger does not end with the maritime side of the businesses. The transfer of China Shipping’s port assets, in the form of its China Shipping Terminal Development unit, to Cosco Pacific turns the latter – which is listed on the Hong Kong stock exchange – into a pure play port operator. This part of the deal will add shareholdings in 18 container terminals in 12 Chinese ports, as well as facilities in Hong Kong, Kaohsiung, Seattle and Los Angeles in the USA, Zeebrugge in

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Belgium, and Damietta in Egypt. Cosco Pacific already owns stakes in 24 container terminals, including common ownership stakes with China Shipping Terminal Development in Tianjin, Hong Kong and Kaohsiung, and has a burgeoning international presence as it attempts to reduce its reliance on Chinese container export volumes – hence its current interest in taking over the Greek gateway and transshipment hub of Piraeus. And in its role controlling the leasing businesses, China Shipping is to acquire Cosco Pacific’s Florens Container Holdings container leasing unit, which is planned to be merged with its own Dong Fang and CS Nauticgreen Holdings container leasing businesses.

WHO’S WHO IN THE NEW GROUP Although there are still a large number of operational details to be ironed out, China’s Government has pressed ahead with the merger of the country’s two stateowned shipping giants. On 4 January it announced that China Ocean Shipping (Group) Co (Cosco) and China Shipping (Group) Co had officially become China Cosco Shipping Corp, and appointed Xu Lirong as its chairman. Wang Haimin was named as general manager of the group’s container shipping department. Mr Wang, 43, previously served as deputy general manager of Cosco Holdings and Cosco Pacific, and vice managing director of Cosco Container Lines. The previous general manager of China Shipping Container Lines, Zhao Hongzhou, has resigned from the group. CST

Container Shipping & Trade | 1st Quarter 2016

28 | REGIONAL FOCUS India

India’s VCTPL meets growing competition head on As the competition heats up, major initiatives are underway at India’s Vizakha Container Terminal by Partha Pratim Basistha

izakha Container Terminal (VCTPL) is the private container terminal operator of state owned Port of Visakhapatnam (Vizag Port). Located in the rapidly industrialising South Indian state of Andhra Pradesh, the terminal – a joint venture operation between Dubai’s DP World and India’s JM Baxi Group – handled 2, 61,000 teu in the year 2013-14. It is likely to close 201415 by handling 2, 70,000 teu. The increase in throughput has been attained despite devastating cyclone Hudhud rampaging through Vizag in October 2014. Growth in traffic volumes has come mainly from the growing industrial and mineral rich Indian states of Madhya Pradesh and Chhattisgarh in central India, and Odisha, Jharkhand and West Bengal in eastern India. The states are within a 700km radius of Vizag Port and happen to be the rich hinterland of VCTPL. The profile of the growing containerised cargo handled at the terminal includes chrome ore, manganese ore, steel coil, aluminium, and agricultural products such as rice, maize and cashew. Sizeable volumes of the growing traffic have been contributed by rising exports of sea food from Andhra Pradesh. Enhanced traffic has also been contributed by the industrial rich city of Raipur at Chhattisgarh as it houses major Indian private aluminium and steel producers, Vedanta and Jindal Steel & Power. The port handles close to 1,500 teu originating from Raipur and VCTPL presently receives two container trains a week from that city. The frequency is expected to go up with a projected further rise in traffic from the region. Speaking to Container Shipping & Trade, Sushil Mulchandani, VCTPL’s chief operating officer, says: “The location advantage that we offer, compared to India’s major gateway terminal of Jawaharlal Nehru Port in Maharashtra, makes us an attractive central Indian industrial cluster. Faster transshipment of cargo through Port Klang, Singapore and Colombo originating from the landlocked state of West Bengal – within 36 hours from our terminal, compared with four days’ transit time from the river port of Kolkata – makes us attractive for the trade in eastern India as well.” There are draught restrictions in state owned Port of Kolkata. This, coupled with a long tidal slack period (the time gap between low and high tide) in the channel of the Hooghly River leading to the mouth of the Indian Ocean, results in delays to vessel

Container Shipping & Trade | 1st Quarter 2016

movements and turnaround at the port. Because of the draught restrictions (between 7m and 8m) the port handles vessels of up to 1,000 teu. VCTPL, which is located on Vizag Port’s outer harbour, with a draught of 17m, can handle feeder vessels of 3,000 teu. However, to make optimum use of the slack period and improve productivity, Kolkata port has recently awarded Singapore’s PSA International a lease to operate its container terminal. Following the award of the contract, PSA has deployed mobile harbour cranes and supporting equipment to make the most of terminal uptime. Backed by assured cargo throughput, VCTPL handles two main line services and feeder services of between 2,200 teu and 2,500 teu. This involves the United Arab Emirates–South India–Chennai CCG service run by Evergreen Line and Simatech Shipping, for Jebel Ali in the Gulf, and TCS Express feeder services run by NYK Line, Regional Container Lines and Mitsui OSK Lines for the southeast Asian port of Penang. Mr Mulchandani says: “We are working to introduce direct services to Europe and the US West Coast. We are also looking to introduce Chennai 2, or CHX2, services between Maersk Line and Hanjin Shipping, through a slot charter deal for the Far East involving Tanjung Pelapas, Singapore and Busan in South Korea.” CHX2 services will involve vessels of between 4,500 teu and 5,000 teu. The introduction of services to Europe and the USA is being considered because of the recently established Brandix India Apparel City enterprise. This has been set up in the Andhra Pradesh Special Economic Zone. Apparel production volumes are expected to rise as a result; VCTPL presently handles 250 teu originating from this activity. Container traffic is also expected to increase, with the proposed setting up of a second special economic zone, close to Vizag Port. To enhance its traffic volumes, VCTPL is looking to attract coastal container cargo from Chittagong Port in India’s neighbouring country, Bangladesh. Estimated volumes of container traffic handled at Chittagong Port are 1.4 million teu. Sizeable volumes, destined for the Far East, are routed through Kolkata port for transshipment in Colombo, Singapore and Port Klang. “Again, cargo destined for the Far East through Kolkata port via transshipment takes four days. We will be able to offer a transit time of 36 hours directly from Chittagong and better main line vessel connectivity. Moreover, we will be offering competitive terminal charges,” says Mr Mulchandani. To handle the expected growth in traffic volumes, VCTPL will be adding capacity by expanding quay length from 395m to 450m. Soil testing has been completed, and tenders for the project are expected to be awarded in early 2016.The terminal will also be adding three more super post-Panamax cranes and nine additional rubber tyred gantry cranes to boost the six that are working

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India REGIONAL FOCUS | 29

there at present. It will also acquire five reach stackers and will have its own container freight station with a focus on better yard management to go with the addition of capacity. A container freight station will also be set up at Vizag by Gateway Shravanan, Balmer Lawrie & Co, Central Warehousing Corp, and Indian state owned rail operator Container Corporation of India (Concor). Concor has already started expanding its present facility. The 98 acre multimodal logistics park which will house the new container freight station is advertised as being one of the biggest logistics parks in the region, with an investment of more than Rs400 crores. The newest facility at Vizag, VPL Integral Container Freight Station, started operations six months ago. “We have 25,000ft² of warehousing facility,” said Sarat Balantrapu, senior vice

INDIA States of Madhya Pradesh and Chhattisgarh in central India, and Odisha, Jharkhand and West Bengal in eastern India: the hinterland of VCTPL are industry and mineral rich

president of the facility. “5,000 teu can be handled on any given day. We will be carrying out future expansion to have railway sidings.” Capacity addition by VCTPL, along with the planned introduction of newer services and new container freight stations for better cargo aggregation, will help to accommodate the rise in traffic, which is expected to reach 4 million teu by 2020. However, a share of the rising traffic could be diverted by Krishnapatnam Port and the soon to be commissioned Kakinada Deep Water Port (in) Andhra Pradesh. The latter has been set up as a joint venture between Indian owned Bothra Shipping Services, Singapore’s PSA, and Kakinada Infrastructure Holdings. Orient Express Lines will launch feeder services with capacity of 1,100 teu on the Chittagong–Kakinada–Colombo route and the Kolkata Port– Kakinada–Singapore route. Kakinada Deep Water Port is the third container terminal in Andhra Pradesh after Vizag and Krishnapatnam. VCTPL does not see privately-owned Krishnapatnam Port as a formidable challenge to its share as the port serves a different hinterland. However, Mr Mulchandani concludes: “It will be premature to assess the impact of Kakinada’s operation on our business. We will be devising new marketing strategies and will reorient our existing strategies to build up and preserve our business share, to offset competition.” CST

Bangladesh, Chittagong Port

VCTPL is aiming to attract coastal cargo from Chittagong Port

City of Raipur

1,500 teu fed to VCTPL Maharashta state

Jawaharlal Nehru port, India’s major gateway terminal

Port of Kolkata

PSA has been given a lease to operate the terminal

State of Andrha Pradesh

VCTPL handled 2.6 million in 2013-14

West Bengal

VCTPL transships from this landlocked state

The lay of the land around VCTPL (Map by Free Vector Maps)

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CLASS SOCIETIES | 31

Class societies look to the future New concepts for an LNG boxship and the next generation of ULCVs have been put under the microscope by DNV GL, which has also done its largest ever ShipManager installation, for Maersk

26 bay /24 row, 23,000 teu ULCS; one of the concepts investigated by DNV GL in its study into what the next generation of ULCS will look like

iquefied natural gas (LNG) as fuel, the next generation of ultra large container vessels (ULCVs) and new software are some of the important areas being covered by class societies in the container sector.

COMBINED LNG AND TURBINE CONCEPT

A feasibility study for an engine-free mega container ship fuelled by LNG and driven by combined gas and steam (Cogas) turbines has been released by DNV GL, CMA CGM and its subsidiary CMA Ships, and LNG membrane containment system producer Gaztransport & Technigaz (GTT). The Piston Engine Room Free Efficient Containership PERFECt concept is the first time that a detailed LNG gas turbine concept has been applied to an ultra large container ship. Explaining the background and benefits of using such a concept, Gerd Würsig, DNV GL’s business director for LNG fuelled ships, said: “We feel that LNG makes it possible to think about other alternatives to the normal piston engine, such as the gas and steam

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turbine engine. These engines are very efficient, but they do not like dirty fuels – you cannot achieve the same high efficiency when using fuel oil with sulphur content. So LNG is a new possibility.” Indeed, the class society points out that large Cogas power plants on land, running on natural gas, achieve net plant efficiencies of approximately 60 per cent as opposed to approximately 52 per cent for conventional large two-stroke diesel engines on ships. A crucial feature of the concept is that container space is not lost. Dr Würsig told Container Shipping & Trade: “In a large container ship you need twice the volume for an LNG tank, which means that you lose container capacity compared with a conventionally powered ship. But by combining LNG with a gas and steam turbine rather than with a two-stroke engine, there is no longer any need for an engineroom. Gas turbines are not as large and heavy as a two-stroke engine and turbines can be modularised.” This means that the Cogas system can be placed within the area of the deck house and the LNG tanks. The loss of the engineroom means that 100 more containers can be accommodated than on

Container Shipping & Trade | 1st Quarter 2016

32 | CLASS SOCIETIES

an oil fuelled ULCV with an engineroom and piston engine. Compared to an LNG fuelled ULCV with a two-stroke engine and the same tank capacity, the gain in containers is much higher. “The message is that you do not lose containers. You might even gain containers if you go for LNG with a gas and steam turbine,” Dr Würsig said. The concept used, as a reference, similar design parameters to 19,000 teu CMA CGM Marco Polo. “There is a real chance that this concept will be used as the basis for a newbuilding,” said Dr Würsig. But he warned: “This is a concept for the future, as the ship cannot be converted back to a conventional ship. Shipowners are careful, and will not simply jump onto new technology.” Looking ahead he said: “My expectation is that such a ship will be built at the beginning of the next decade, when LNG is more established in the market.”

SUEZMAX NEXT GENERATION FOR ULCV

Elsewhere, DNV GL has recently concluded a study to establish how large the next generation of ULCVs are likely to be. The conclusion is Suezmax, as the next generation will be constrained by the size restrictions of the Suez Canal. Explaining the scope of the study, DNV GL business director for container ships Jost Bergmann said: “We looked at what the maximum size could be from a purely technical point of view and from a transport efficiency point of view.” Taking a base design of a 20,300 teu ULCV with 24 40ft bays of containers and 23 rows, the study looked at creating different combinations of length and beam to increase the number of containers carried. The study found that from a naval architecture point of view it was possible to increase the beam to 25 rows and the length to 28 bays, allowing the capacity of a ULCV to reach 26,300 teu. Mr Bergmann explained: “We believe this would be feasible. There is no real limit from the naval architecture point of view, but we have to come back to infrastructure limitations. Many ports have restrictions in terms of length or beam of vessel, and draught. But even if ports are able to do something about this, we still have the Suez Canal limitations.” These mean that a vessel of this dimension would not be able to pass through fully loaded. “This is a big limitation. That is why we say that the next generation of ULCVs will be Suezmax,” said Mr Bergmann. It is acknowledged, however, that some large container vessels are by-passing the Suez Canal, mainly on their head haul leg back to Asia. Because of the limitations imposed by the canal, the conclusion of the study was that the most likely practical size for the next generation would be a vessel with 26 bays and 24 rows with a 23,300 teu nominal capacity. Mr Bergmann said of the 23,300 teu design: “This will be feasible within a short period of time.”

SHIPMANAGER FOR MAERSK

Maersk Line is replacing nine legacy software applications with a single solution after deciding to implement DNV GL’s ShipManager on its fleet of 275 vessels. This is the largest ever application of the class society’s software solution. Rune Lyngaas, head of product management for maritime software at DNV GL Software, told Container Shipping & Trade why the operator had decided to do this. “With the implementation of ShipManager the majority of Maersk’s applications have been

Container Shipping & Trade | 1st Quarter 2016

Jost Bergmann (DNV GL) Next generation ULCVs will be constrained by Suez Canal restrictions

combined into one single product, which is easy to use, integrated and makes sure everything is done in the same way across the entire fleet. This makes everyday life more effective both on board, and in the office.” Torsten Kappel, director of operations for maritime and class solutions at DNV GL, spoke about further benefits. “Being able to extract data from one system is very useful for customers looking to monitor or make changes to their fleet. The solution allows you to look at and compare different groups of vessels and individual ships to ensure your decisions are backed up by accurate data. Traditionally, if there are a lot of different systems then someone has to put the data into spreadsheets manually and consolidate the database. This kind of approach increases the possibility of errors and takes a lot of effort and energy. With one system the data is all there and ready to use.” He explained that the installation of the software is being rolled out in three stages. It began with an exploration phase that looked at what to optimise and automate, followed by a stabilisation phase where every installation was tested and verified. The project is now in its industrial phase, with a monthly roll out of 15-20 vessels. By mid March the first 100 vessels will have been completed. The date of completion has been earmarked as March 2017. The implementation of ShipManager marks the start of a longterm collaboration. “This is a long-term partnership, which provides Maersk Line with sustainability in its long-term strategy, and reliability and investment security in its fleet management solution,” explained Mr Lyngaas. He summed up: “It was very important to Maersk Line to have an off-the-shelf solution in order to move away from too much customisation and ensure that the application lives up to the industry standard, as well as benefitting from regular updates.” CST

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CLASS SOCIETIES | 33

BV’s NEW RULES FOR NEW CHALLENGES Bureau Veritas (BV) is updating its rules for containerships following the introduction of new IACS UR S11A for containerships, which will be applicable from the 1st July 2016. Christophe Chauviere, BV head of development department, said of the new rules, which will be launched in July this year: “The powerful principle of equivalent design loads was used to underpin development of this new set of rules. The more realistic loads make the rules more precise and allow the normal use of direct calculation for the structure. New formulas are being derived for extreme and fatigue loads based on spectral analysis of a large number of vessels. Bureau Veritas is leading the way in class introducing this concept into all areas of the new rules.”

He explained that the effect of antirolling tanks are also considered for the development of the rules’ motions, while ultimate strength, whipping and springing phenomena are covered too. These are an important focus for BV as the class society is the leader of a new IACS group on whipping for containerships. The rules for the lashing calculation are also updated and in particular take into account the gaps in the lashing equipment. “By these new rules, BV is using all its last research investigations and powerful methodologies in order to get modern and reliable rules, enabling the designers and shipyards to optimise their designs while ensuring safe structures,” Mr Chauviere commented. A major focus for BV are ultra large

container ships (ULCS). Konstantinos Chatzitolios, BV business development manager, said that the French class society “has been in the forefront of research and has developed dedicated software and methodologies to tackle the technical challenges associated with ULCS, with the results of this research reflected in the new rules”. He added: “BV is among the leading classification societies for ULCS above 13,000Teu with more than 20 vessels in its register, including the 20,600 teu ships under construction in Hanjin Philippines. With a length of 400m, a beam of 59m and a depth of 33m, these vessels rank among the largest container ships on order today.”

ABS launches C-LASH Class society ABS is launching ABS Eagle C-LASH, a software programme which is based on a new container lashing analysis procedure, later this year. Explaining the reasons behind its launch, Eric Norris, director, ABS corporate marine technology, told CST: “Much of the current industry software fails to take into account the gap effects of fully automated twistlocks (FATs) and nonlinear effects on containerships – ABS C-LASH was developed to address these challenges. As the stowage height on container ships increases, nonlinear effects caused by the existence of twistlock gaps are becoming more crucial. Twistlock gaps also increase transverse stack deformations, which in turn increase the acting moments. Transverse deformation at the top of a tall stack can be as much as one metre. “This is important because large stack deformations below the highest lashing rod have a negative impact on lashing rod forces, such that each millimetre of additional stretch of the lashing rod can translate into approximately 20 kilo-Newtons of additional tension force in the lashing rod.” He said that ABS C-LASH uses a full nonlinear iterative solver to more accurately determine the extent of the gap openings created by the use of FATs, the displacement of the lashing bridge and the nonlinear response of the lashing rods to determine the loads on the lashing rods, container fittings, container racking and container corner post to represent more of a ‘real-world’ simulation. CST

ABS Eagle C-LASH is based on a new container lashing analysis procedure (credit: ABS)

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Container Shipping & Trade | 1st Quarter 2016

34 | ULTRA LARGE CONTAINER VESSELS

THE LIE OF THE LAND WHILE PLANS ARE ON THE DRAWING BOARD TO CREATE A NEW GENERATION OF ULTRA LARGE CONTAINER VESSELS, PORTS ARE UNLIKELY TO BE ABLE TO KEEP UP

ontainer ship sizes have become ever larger since the inception of this vessel type, and this process has become more extreme as time has gone on. The motivation for carriers to invest in larger tonnage is relatively simple – the bigger the ship, the lower the slot cost per teu. And in an era in which container shipping has become commoditised lower costs, and therefore the ability to offer shippers and forwarders lower freight rates, is the chief weapon to win market share. In these economically precarious times it is also the best tool for staying in business. The age of ultra large container

Container Shipping & Trade | 1st Quarter 2016

vessels (ULCVs) began with Maersk Line’s order for 20 Triple-E vessels, rated with a capacity of 18,270 teu. The Danish carrier was followed by the rest of the pack ordering ULCVs of varying sizes upwards of 14,000 teu – but the fundamental trend was to increase capacity over the Triple-E. Last year saw Mediterranean Shipping Co (MSC) introducing MSC Oscar, China Shipping Container Lines Co (CSCL) introducing CSCL Globe and United Arab Shipping Co (UASC) launching Barzan, the first of its six A18 class vessels built by Hyundai Samho Heavy Industries Co in Mokpo, South Korea. Although UASC publically states that

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ULTRA LARGE CONTAINER VESSELS | 35

Maersk signs LNG deal with Qatar and Shell

ABOVE: Daewoo Shipbuilding & Marine Engineering chief executive Sung-Leep Jung and Maersk Line chief executive Søren Skou sign the order for 11 Triple-E next generation 19,630 teu vessels BOTTOM: MSC Oscar at sea trials shortly before becoming the latest “world’s biggest box ship”

the vessel’s capacity is over 18,800 teu, its nominal capacity is actually 19,870 teu, making it the world’s largest container ship. It is the first vessel to have a quoted length of 400m, whereas most other ULCVs are a metre or so shorter. It has a breadth of 58.68m and a draught of 16m. Barzan, along with its A18 class sisterships, can load 10 tiers deep below decks, with up to 11 high on deck, and has 1,000 reefer slots. Its launch coincided with the last Triple-E delivery and the announcement that Maersk had placed a new order for 11 Triple-E next generation 19,630 teu vessels for delivery in 2017 and 2018, with Daewoo Shipbuilding & Marine Engineering Co in South Korea. The new ships represent a capacity increase of 1,360 teu over the original Triple-Es, or 7.4 per cent. In terms of their physical dimensions – with a length of 400m, beam of 58.6m and a draught of 16.5m – they are virtually identical to the first generation, which goes to show how container vessel design has changed, in terms of accommodating more slots, since the Triple-E was first conceived. A Maersk Line spokesman says that, like Barzan, the new units will have 1,000 reefer plugs. This is considerably more than the 600 plugs on today’s Triple-Es. It is also understood that the engines will be of the twin-screw type, and Maersk executives have indicated that since the company has been operating the Triple-E vessels it has been investigating the viability of fitting them with smaller engines, now that slow steaming has become commonplace. “While the contract is for a twin ›››

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Qatar’s national gas exploration company Qatargas, the Maersk Group and Shell have signed a memorandum of understanding (MOU) to explore the development of liquefied natural gas (LNG) as a marine fuel in the Middle East region. The partners said they will explore the development of new markets for LNG to be used as propulsion fuel for vessels as a complete replacement for heavy fuel oil. The MOU paves the way for LNG supplies to be made available from Qatargas 4, a joint venture between Qatar Petroleum and Shell Gas, with Maersk Line potentially using the fuel for its merchant vessels. Saad Sherida Al-Kaabi, chairman of the Qatargas board of directors, said: “We are very proud to continue to pioneer new and novel opportunities to utilise Qatar’s LNG. We are also proud to partner with industry leaders such as Maersk and Shell to create potential new market opportunities for Qatar’s LNG and, at the same time, provide ship operators around the globe with a cleaner fuel alternative to the heavy fuel oils currently in use.” Khalid Bin Khalifa Al-Thani, Qatargas chief executive, added: “We have recently celebrated a global first by proving the use of LNG as a reliable marine fuel in the converted diesel engines of our time chartered vessel MV Rasheeda, now fitted with an M-Type electronically-controlled gas injection system. The signing of this MOU is an important milestone in this journey. We are looking forward to continued close work and collaboration with our partners Shell and Maersk to develop the use of LNG to its full potential.” Maersk Group chief executive Nils Andersen said: “This co-operation between Qatargas, Maersk Group and Shell represents an important step in developing LNG as a viable fuel for maritime transportation. The possible use of LNG as fuel for ships presents an opportunity to reduce both SOx emissions and the transport sector’s CO2 footprint.” Michiel Kool, managing director and chairman of Qatar Shell, said: “LNG fuel is a new alternative for ship and vessel operators responding to stricter emissions control standards. Shell has been a pioneer in this area with our investments in LNG for transport infrastructure in Europe and the USA, and we look forward to now deploying our expertise to create a regional hub in the Middle East.”

Container Shipping & Trade | 1st Quarter 2016

36 | ULTRA LARGE CONTAINER VESSELS

››› skeg [the projecting after section of a vessel’s keel, where the propeller is sited], we may yet opt for a single skeg. We expect the output to be over 60KW, equivalent to 550 VW Golf cars,” the spokesman adds. The new vessels are also considerably cheaper than the US$185 million per unit that Maersk paid for the original Triple-Es in 2011. The new order has a total value of US$1.8 billion, representing a per ship price of US$163.6 million. This puts Maersk more in line with other carriers, which have been paying prices in the band US$150 million to US$160 million for their vessels. There is an option for six additional units. Maersk said the new vessels will operate its Asia–Europe service, replacing smaller, less efficient ships. At the time of the order, Maersk Line chief operating officer Søren Toft said: “I am very happy with this order. These vessels will help us stay competitive in the Asia–Europe trade and will be key in our strategy to grow with the market. It is the second order this year and we expect to

order more vessels, which we can add to our fleet from 2017 and onwards.” What happens next is anyone’s guess – although it is likely that vessel sizes will get even larger, according to Andrew Penfold, project director at Ocean Shipping Consultants, part of Royal HaskoningDHV. He told delegates at last year’s TOC Europe conference in Rotterdam that designs for vessels of over 20,000 teu had become quite advanced. “We have been working closely with Lloyd’s Register and can confirm that there is no technical reason why ships cannot go above 20,000 teu – and we have had very serious discussion about vessels of 22,000 teu. “In all likelihood these vessels will be longer than current sizes rather than beamier,” he said. “After that there may be a pause in ordering greater vessel sizes, although I would imagine it would ultimately resume again,” he added. Maersk Line’s head of network and procurement in north Europe Hans Augusteijn said that the dimensions of the recent Maersk order were due to the

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carrier’s assessment of where demand and supply on the Asia–Europe trade was heading. “The reason that Maersk Line has decided to order vessels of 19,630 teu size is that it was appropriate to keep up with the market growth. But we did not want to go beyond that because we wanted to grow in line with how we expect the trade to grow.” He added that problems with berth productivity at terminals were also a factor. Although average berth productivity had increased globally in terms of the gross number of crane moves per hour, these increases had not kept pace with increasing vessel dimensions. Mr Penfold added that the increase in vessel sizes inevitably led to more containers being exchanged in a single vessel call, and larger vessels would place even more pressure on terminals. His predictions came with a caveat, however, as the bout of orders for ULCVs of 18,000 teu and over had come soon after a series of smaller vessels, of between 12,500 teu and 13,000 teu, had been speculatively ordered by non-

ULTRA LARGE CONTAINER VESSELS | 37

operating shipowners. This could affect vessel operating costs. “Since the 18,000 teu vessel is so much more economic than a 12,500 teu vessel, there will be pressure on some of these non-operating shipowners to offload these assets if they cannot find employment for them. Should these vessels be sold as distressed assets and picked up very cheaply by operators, it could be that they suddenly become more cost effective than the bigger vessels. The economics can be very complicated,” Mr Penfold said. However, it may be that the chief obstacle to greater vessel sizes is to be found on land rather than on naval architects’ drawing boards. Ports are finding it increasingly difficult to handle such large vessels and the enormous numbers of containers being loaded and unloaded in a single call. And because ship capacity has increased as vessels have become wider rather than longer, terminal operators have been unable to do what they normally do when faced with bigger ships – deploy more cranes. For example, 2009-built Gerda Maersk is 366m long and 43m wide and offers a capacity of 9,000 teu. In comparison, Maersk-McKinney Møller is just 10 per cent longer at 399m, but is 37 per cent wider at 59m and carries twice as many containers. And as the ships become bigger, that contrast becomes even more pronounced. Emma Maersk is just 2m shorter and 2m narrower than Maersk-McKinney Møller but has a capacity of 15,500 teu, representing an increase of 18 per cent. “The fact is that vessel size increases are not proportionate with the length of the vessels so we cannot put more cranes into operation,” says APM Terminals head of design and automation Alexandru Duca. And according to Drewry’s senior analyst for ports and terminals Neil Davidson, eight is the maximum number of cranes that can be set to work on the largest ship, and in most cases terminals will deploy six. The only other option is to increase crane moves per hour, but here too there are limitations. Mr Davidson explains that the critical space on the dockside underneath the cranes, coupled with the way containers are moved from yard stacks to the quay and vice versa, remains too small to allow terminal operators any chance of achieving a step

change in productivity. “The real problem is the congestion under the crane. Getting the boxes to and away from the crane is still the fundamental issue. The more boxes you lift on and off a ship per crane per hour, the more trailers, tractors, straddle carriers and the like are arriving in the lanes between the crane’s legs, and you hit a congestion problem,” he says. However, Mr Penfold revealed that the next generation of ULCV designs that

are being developed under the gaze of Lloyd’s Register show that carriers have become more aware of current terminals’ limitations. The 22,000 teu vessel on the drawing board has a length of 430m and a beam of 59m, while there are two possible options for going up to 24,000 teu – either the same beam and a length of 450m, or a 430m long vessel with a beam of 61m. Either way, carriers will have to begin talking to their terminals well in advance. CST

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38 | BALLAST WATER TREATMENT SYSTEMS

So near yet so far

THE SHIPPING INDUSTRY IS ON THE VERGE OF SEEING NEW BALLAST WATER REGULATIONS INTRODUCED, BUT ISSUES REMAIN OVER DIFFERENCES BETWEEN IMO AND US STANDARDS

Cathelco’s ballast water treatment system is ready to begin testing to win US Coast Guard approval

he global shipping industry stands on the verge of having the new Ballast Water Management regulations introduced by the International Maritime Organization (IMO), after it announced late last year that Ghana and Indonesia had acceded to its Ballast Water Management Convention. According to revised figures released by the IMO in February this year, the proportion of the global shipping fleet of all types of vessel now stands at 34.35 per cent, just 0.65 per cent of the 35 per cent threshold that would mean the convention is to become mandatory for all vessels. And according to ballast water management systems (BWMS) advisory firm Mouawad Consulting, Belgium is set to also ratify the treaty as Container Shipping & Trade goes to press, taking the convention right to the very edge of becoming law, according to Mouawad Consulting. “Belgium has a 0.43 per cent of global gross tonnage as of 31 December 2014. Our sources tell us that this figure has increased due to new VLCCs entering into the Belgian flag recently. The exact figures from IMO are not available yet, but the estimates for Belgium are in the range of 0.6 per cent. Meaning that the BWM Convention will have 48 countries and 34.95 per cent gross tonnage of the required 35 per cent gross tonnage by March 2016,” it said.

Container Shipping & Trade | 1st Quarter 2016

In the run-up to the 35 per cent figure being achieved, suppliers of ballast water management systems (BWMS) technology around the world are investing in facilities that will service the world’s container vessel fleet once the new regulations become mandatory, although these is also growing concern over the discrepancies between the requirements of the US Coast Guard (USCG), US Environmental Protection Agency and the IMO. Manufacturers are currently being forced to attain a variety of approvals for their BWMSs. Cathelco, the UK maritime technology firm that has developed a series of innovative impressed current cathodic protection (ICCP) systems for semi-submersibles, FPSOs and FSOs to ward off hull corrosion, has now turned its attention to the growing opportunities in the BWMS field and after winning basic approval from the IMO it has sent a letter of intent to the US Coast Guard (USCG) verifying its readiness to begin testing its BWTS system for the USCG’s Type Approval. The tests will be carried out under FDA/CMFDA methodology where life forms are judged as living or dead, and is the standard that the USCG has insisted must be applied to ballast water treatment systems. Cathelco executives said that the tests are also expected to

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BALLAST WATER TREATMENT SYSTEMS | 39

show the system able to meet the revised standards of the new draft of the IMO G8 Guidelines. Robert Field, Cathelco’s technical director, said: “Our system has already received IMO Type Approval and AMS Certification from the USCG. We are pushing ahead with sales, but recognise that it is essential to attain USCG Type Approval as soon as possible.” The company explained that AMS Certification is an interim designation given to BWT systems approved by a non-US administration which enables them to be employed on vessels for up to five years while they undergo USCG testing. In 2014, Cathelco introduced a ballast water treatment (BWT) system based on combination of filtration and UV technology with capacities from 32m3/hr to 1,200m3/hr, and has been since been developed to automatically adjust to different sea water qualities. It uses a UVT sensor to measure UV light transmittance – the amount of UV radiation actually passing through the seawater, which it argued is a very reliable parameter for calculating the UV dose as well as ensuring that power is used economically. The system also features stepless power control, inlet manifolds designed to make the water flow in a helix to increase contact time during irradiation, and a chemical free cleaning system. The company hopes to put the system through a testing programme at Marine Eco Analytics (MEA-nl) in The Netherlands, which is in the process of obtaining USCG approval. MEA-nl is located on the Dutch coast where “tests using marine, fresh and brackish water can be performed in real world conditions”. Cathelco explained that this land-based testing will be followed by testing on board the AS Patria, a container ship built in 2006 which is operated by Ahrenkiel Steamship of Hamburg. Cathelco sales director Peter Smith says: “Many ship owners are still undecided about which BWT systems to purchase for their vessels. Clearly, potential customers will have greater confidence in a system that has attained USCG Type Approval and we are committed to achieving this within the next 12 months. “At the same time, testing to the expected revised IMO G8 Guidelines provides the assurance that the system meets all the necessary performance criteria, resulting in publicly available data which enables systems to be compared more easily.” Meanwhile Hyde Marine has been busy developing its ballast water management system to suit the needs of container ship operators, as well as appealing against a USCG crackdown on ballast treatment techniques. The USCG requires organisms to be killed, and in order to confirm whether their systems comply many manufacturers of ultraviolet (UV) based systems rely on a most probable number (MPN) technique. But in December the USCG decided that MPN is not an acceptable testing method because it believes that it does not measure the efficacy of a ballast water management system (BWMS) to kill organisms. BWMS manufacturer Hyde Marine has filed an appeal to this decision and, at the time of writing, is waiting for an answer from the USCG. Hyde Marine product manager Mark Riggio told Container Shipping & Trade: “We put in our application for using MPN as part of our type approval and worked with the coast guard for three years on this. It was disappointing for us when it turned down our application in December, after we had worked with it for such a long period of time. We feel strongly that this decision was not made using the best science or in the best interests of ship operators. We believe that the USCG will have to reconsider its decision and we are hopeful it will come to the right conclusion.”

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He added: “It is hard for us to understand what the issues are. MPN is an important and valid element of what we use for UV disinfection, in many different applications. We feel very strongly that MPN is right way to go. We remain very confident that we have the most environmentally friendly way of treating ballast water.” Hyde Marine has fitted its Hyde Guardian Gold systems on a wide range of container vessels, including ultra large container ships. Mr Riggio pointed out that for container ship operators, the major requirement is that a ballast system must easily integrate with a ship’s central automation system. This is something that Hyde Marine has spent time working on. He explained: “Of utmost importance are power requirements, because often when a container ship is ballasting reefer containers are being loaded and unloaded. These can take on extremely high power, which is a major power draw on the ship. “The ship needs a system that is not going to shut down and that will allow it to operate the way it always has. We have therefore developed a system that is capable of integrating with a container ship’s central automation systems, so that the ballast can be easily manipulated.” Hyde Marine developed the integration aspect of its systems between 2013 and 2014. “We made very significant strides, especially as we adapted to the requirements of large container ships. We spent time and effort harmonising and consolidating the internal automation, and created ways in which it can interface with the vessel automation system when we install it.” Mr Riggio said that he believed UV systems were particularly suitable for container ships. “Most container vessels have certain tanks from which they move ballast all the time, while others are only rarely used. Our system treats on both uptake and discharge which gives owners protection for tanks that do not ballast routinely, but may take on ballast and then go weeks before de-ballasting. In central tanks where there is a lot of ballast the UV system does not require holding time, so there is no chance of cross contamination.” CST

Hyde Marine’s Hyde Guardian Gold integrates with the central automation system of container ships

Container Shipping & Trade | 1st Quarter 2016

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EMISSIONS ABATEMENT | 41

European feeder vessels future proof with hybrid scrubber A European feeder vessel owner has chosen the Wärtsilä hybrid scrubber for its newbuild vessels

ärtsilä has clinched a contract to provide scrubber systems for a major European owner and operator of feeder vessels. These are the first container-only newbuilds for which it has provided such systems. Previously it has received orders for scrubbers for container ship retrofits and container roro newbuildings. Wärtsilä received the order for its hybrid scrubber systems, to clean the exhaust emissions from three 2,500 teu feeder vessels, in March last year. The installation was ordered by a European owner and operator – which does not wish to be named - and was carried out at Jinhai Heavy Industry Co in China. The systems were delivered in December. The scrubber system, which comprises two scrubber units, was installed to clean the exhaust from both the main and the auxiliary engine. A total power output of 28MW will be handled by the Wärtsilä system. These hybrid scrubber systems enable the use of either closed loop or open loop technology to remove SOx from the exhaust. When operating in open loop mode, exhaust gases enter the system and are sprayed with sea water. Chemicals are not required,

as the natural alkalinity of sea water reacts with the sulphur and cleanses it from the exhaust gas. When the system is operating in closed loop mode, sodium hydroxide (NaOH) is added to the sea water as an alkali. Sigurd Jenssen, director for exhaust gas cleaning at Wärtsilä Marine Solutions, told Container Shipping & Trade: “These ships will be spending a lot of time in the eco system and there are cost savings to be had by running on heavy fuel all the time. Also, in 2020 stricter limits on the sulphur content of fuel will be imposed in European waters, covering a large area. This will affect a large part of the shipping sector, and our customer is preparing for that.” Explaining why the company decided on a hybrid scrubber, Mr Jenssen said: “This is its first scrubber installation, so there is an element of learning and gaining experience. The company will be able to see what operating modes work best for it in different conditions.” He added that there was also an element of “future proofing” in the decision, as the hybrid allows the ship to run with zero discharge. This is an important option as zero

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discharge could become a requirement in some areas, on a local port level. The Wärsilä systems are all equipped with water cleaning in both open loop and closed loop mode, ensuring a safe discharge. This means that zero discharge is not strictly needed, but in sensitive areas a cautious approach could be warranted. The hybrid system enables operation in closed loop mode when entering zero discharge areas or where the seawater alkalinity is low. Elsewhere the switch can be made to open loop, using only sea water. Wärtsilä’s other box ship scrubber projects include newbuild container roro vessels and retrofits of container-only ships. The company has retrofitted

scrubbers on nine ships for Finnlines, using both open loop and hybrid systems. Commenting on the relative merits of open loop systems, Mr Jenssen said: “Open loop solutions are simpler and lower cost in terms of both capital expenditure and operating expenditure.” Wärtsilä has also delivered scrubbers to eight container roro newbuilds belonging to Messina Lines, which operates in the Mediterranean. The company has also launched an inline scrubber that is a good match for container ships as it can replace the silencer. This means that it takes up much less space than a conventional scrubber. Mr Jenssen commented: “It is a very space efficient solution. We have them on roro vessels in Finland, although they have mainly been used for cruise and ferry applications. But they are also a good option for container ships and make it easier to find space for them, especially on retrofits. They are much smaller than conventional scrubbers. They are slightly bigger than the silencer, but we can still replace this with the scrubber, as it is more or less within the same size envelope.” CST

Wärtsilä’s hybrid scrubber allows a ship to run with zero discharge

Container Shipping & Trade | 1st Quarter 2016

42 | FLEET STATISTICS

FEEDER FORTUNES

ON THE UP

FEEDER BUSINESS IS GOING FROM STRENGTH TO STRENGTH, WITH MOST ASPECTS IN THIS SECTOR’S FAVOUR by Barry Luthwaite

hile deepsea traders are struggling with loss-making trade, feeder owners are sustaining the gains they have made over the last three years thanks to various exigencies of trade. The major lines have been forced to adopt drastic measures as rates continue to fall and shippers will not succumb to moves to increase costs. Three proposed rate increases failed on the Asia– Europe service in 2015. Scrapping is increasing for older vessels and lay-ups in large numbers are mooted. With the drop in global consumer demand the industry stands on the precipice of another trading crash. Why, then, is feeder business prospering? The drop in deepsea calls has led Asian hub port Singapore to slash port dues in order to preserve employment at its busy berths. Other ports will have to offer similar inducements. The operators of ultra large carriers of 18,000-20,000 teu are really struggling, and it is not easy to switch trades because of limited port infrastructure elsewhere and lack of water depth. Reduced to desperate measures in some cases, the major owners are struggling to cover operating costs. On some routes load factors are up, but not at profitable levels. In order to cut costs, some regular deepsea calls have been reduced to inducement status. But such moves are covered by feeder units, which can work the spot market to their advantage and replace the deepsea services that have been eliminated. European feeder services have been badly hit by the sanctions against Russia but some familiar European operators previously in this trade are now switching their vessels to Asian cabotage business. Feeder owners have almost everything in their favour at the moment. There has already been a sharp increase in second-hand deals, several of which are enforced sales at the behest of banks or principal mortgagees. Any thoughts that the German KG crisis had finally ended have been dispelled in recent weeks. Tonnage that was formerly KG-owned and then taken on by German management consortia is now being offered for sale. The prices are hardly encouraging for sellers but they offer a huge advantage for the owners of healthy feeder businesses, who continue to make plans for the expansion of their fleets. With so many shipyards in trouble it is a buyer’s market for

Container Shipping & Trade | 1st Quarter 2016

new vessels, too. Owners still mainly turn to the smaller Chinese builders even though this is a risk, as these yards do not feature on the so called ‘white list’ of financially healthy builders. This is the preserve of the large state owned shipyards. Germany still maintains a strong relationship with Chinese yards and is strong in the feeder trades despite the KG debacle. Newbuilding prices continue to fall. Chinese designers are teaming up with established owners, which gives the owners an assurance of security if they are choosing a small or medium sized shipyard in China. Jüngerhans is one of several German owners to take full advantage of this, having ordered many feeders here before. After a long period of consolidation, working the markets with its existing assets, Jüngerhans felt the time was right to return to newbuildings. The owner is a specialist, operating a fleet of 17 feeder ships with capacity from 972 teu to 1,200 teu. It has now decided to order its first newbuildings in five years. Four plus an optional four 1,000 teu units were contracted at Zhoushan Changhong International Shipyard Co in a deal valued at US$148 million in total, if the options are firmed. The geared units have been commissioned under a joint co-operation agreement with Shanghai CIMC Ship and Offshore Design & Research Institute Co, with the firm quartet due for delivery throughout 2018. CIMC (China International Marine Containers) carries a lot of weight in feeder construction in China. In just six months 87 feeders were ordered, underlining the strength of optimism about this sector. The market is changing fundamentally, but supply and demand from load factors is suiting feeder trades nicely. Ultimately, however, this could be a false dawn unless deepsea volumes pick up considerably and liner operators move into profit. The likes of Maersk Line, Mediterranean Shipping Co (MSC) and Evergreen Line have departed from employing charters and gone for more self-sufficiency by employing their own feeder vessels of 2,800 to 3,700 teu. These are in the form of tailor made newbuildings. While options for some of these have been cancelled in the wake of a dire market, it is clear that the big owners perceive that these sizes are ideal for their own connecting, door to door customer routes. In the long run the feeder vessels will also help cut their operating costs by reducing their dependency on charter parties. It is interesting to note the number of feeder vessels being built in China for local owners looking to make their mark in cabotage, as China seeks more self-sufficiency in serving its enormous hinterland. This is not without risk, as bankruptcies are increasing in difficult economic times for China. Too many orders, including feeder container ships, are falling victim to bankruptcy. Time has caught up with smaller and medium sized Chinese

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*All data provided by BRL Associates

builders which have taken orders for ships at, or below, cost to preserve employment. One of the ‘white list’ of state owned builders – Zhejiang Shipping Group Zhoushan Wuzhou Ship Repairing & Building Co – became the first government owned failure at the end of 2015, leaving in its wake nine newbuilding 2,850 teu feeders only two of which were advanced in construction. The vessels had been ordered by domestic owner Zhonggu Shipping and financed by Shanghai Guojin Leasing Co. A number of vessels that are being financed domestically are under the microscope in terms of viability, because of the deteriorating economic conditions prevailing in China. This is why export business in China requires serious examination, especially with regard to refund guarantees. It would, however, be unfair to see all builders in the same light, for there are some fine small and medium sized yards making their mark with proven feeder designs. Owners are, of course, pursuing the goal of maximum advantage in competition. One noticeable move is the increase in reefer slots as this sector continues to gain ground over conventional reefers. Even down to the smallest, 1,000 teu sized vessel, provision is now made for a few reefer slots. For larger sizes some owners are ordering wide beam units to obtain more load capacity and reefer shortsea movements. Statistically it is interesting to note that the current orderbook for vessels up to 5,000 teu totals 266 which will introduce 568,649 teu onto the market over the next two years. This is virtually half of the total container ship orderbook of 537 vessels aggregating 4,376,169 teu. It also underlines the strength of this sector and the amount of confidence that is placed in it. China dominates the feeder field in terms of construction, claiming 193 vessels at 26 different shipyards aggregating 424,262 teu. There is a feeling that China may over-stretch itself, as a few of the builders are working on own-account vessels in the hope of resale. This tactic has brought a lot of insolvency

problems with bulk carriers in the current climate. The 1,000 teu vessel remains popular as more units built in the 1990s are sold for scrap. Many of them are becoming uncompetitive in terms of technology, which is driving design changes. New environmental legislation is also driving the way in which vessels are designed and operated. Such changes help to keep a balance in supply and demand. The 1,000-2,000 teu unit is also in demand, as is evidenced by charter rates matching or beating vessels of twice this size. Period charters are disappointing with charterers reluctant to offer any length of time beyond 4-6 months, although rolling options may be built into contracts. A relative dearth of orders for this size bracket and new deliveries at least a year away have boosted spot rates. Currently period and spot charters can command US$6,000 to US$7,500 a day which is down on the peaks of a year ago but still provides profits, especially with today’s low fuel costs. Ultimately, the fortunes of feeders are dependent on a strong deepsea fleet. This year could see a turning point, as improvements to the Suez and Panama canals induce bigger tonnage and cut transit times on certain voyages. The major headache remains finance, especially private equity. Feeder units have generally not been financed by private equity, due to being at the lower end of the size range. This is a blessing, now that investors in private equity are pulling out of certain trading sectors. A notable point for owners and investors is the average gain of US$1,000 a day more for hiring feeders on the spot market if they are eco friendly. This is because of the tougher emissions controls in the USA and Europe. The prognosis is therefore encouraging, but owners know they could be on borrowed time. And so much depends on the Chinese economy as it impinges on global trade. The scale of box related trade bankruptcies continues to cause concern, especially in China’s own coastal industry. This has led some shipowners to seek third party management, especially from Germany. CST

CONTAINER SHIPS ORDERBOOK BY EXPECTED DELIVERY YEAR* teu range

total no

2016

teu

2017

teu

2018

teu

2019

2020

teu

below 1,000

7,635

1,000 - 1,999

108

160,410

69,218

83,192

8,000

2,000 - 3,999

134

365,153

141,691

104,090

111,272

8,100

4,000 - 5,999

67,451

23,451

44,000

6,000 - 7,999

34,530

8,000 - 9,999

484,412

389,812

94,600

10,000 - 10,999

52,500

21,000

31,500

11,000 - 11,999

472,770

110,560

210,710

80,700

59,000

11,800

12,000 - 12,999

12,600

13,000 - 13,999

246,350

96,740

149,610

14,000 - 14,999

749,500

241,800

353,200

112,500

14,000

28,000

15,000 - 15,999

122,400

16,000 - 16,999

48,000

17,000 - 17,999

18,000 - 18,999

180,000

108,000

72,000

19,000 - 19,999

690,730

151,200

251,380

288,150

20,000 +

681,728

268,700

269,528

82,000

61,500

537

4,376,169

217

1,348,237

186

1,441,372

111

1,250,160

235,100

101,300

total

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Container Shipping & Trade | 1st Quarter 2016

44 | LAST WORD

SHIPPERS MUST BE READY FOR CONTAINER WEIGHING TO MINIMISE PROBLEMS

Charles McCammon, vice-president marine risk consulting, Willis Towers Watson

ith five months left until IMO will require all internationally shipped containers to have their weights verified before loading, many of those in the supply chain appear to lack confidence they will be able to meet the challenge. According to a survey published in December by INTTRA, a popular e-trade portal, about half of the 410 respondents did not believe the industry was ready to comply. The new Solas regulation could severely disrupt containerised trade because it requires shipping lines to reject containers that have not been weighed. Fortunately, shippers still have time to work with their transport providers to ensure they can comply. Best practice guidelines for container weight verification was developed by two leading shipowner associations – the International Chamber of Shipping and the World Shipping Council. When industry failed to implement these voluntary guidelines, IMO was compelled by events to adopt the rule (Solas Regulation VI/2 – Cargo Information) in November 2014. The catalyst for the development of a regulation was the structural failure and subsequent total loss of MSC Napoli in January 2007. Mis-declared container weights were identified as a key factor leading to the structural failure of the hull. The associated loss was an estimated US$194 million. At the time, this was the second largest loss in the history of commercial shipping after Exxon Valdez. Clearly, the logistical challenge is significant. The lead shipper is responsible for documenting and providing the verified gross mass (VGM) of each container – including cargo, pallets, packing and securing materials and the weight of the unladen container – to the terminal and vessel in time for the stowage plan to be prepared. The onus is on the shipping line to only accept containers with verified weights. If the verified weight is not transmitted in time, the container will not be loaded. No estimates are allowed. In its present form, the regulation poses many questions. For a wary supply chain community, the missing answers could impact everything from transport costs to cargo liability cover. For example, there is little guidance on

Container Shipping & Trade | 1st Quarter 2016

how the new regulation will be monitored, administered and enforced. Each country is to establish and implement its own compliance procedures and regulations for certification. For the industry, in the absence of a universal VGM form or compliance procedures, guidance on how to comply is being left to the individual shipping line. There are also questions about the timing for VGM submissions. The regulation states only that the information must be provided ‘sufficiently in advance’ of sailing. Carriers normally create stowage plans 12-24 hours before calling at the port, but they have yet to reach a consensus on a deadline. Containers arriving at terminals without VGM documentation can be weighed using what the rule describes as calibrated and certified equipment. But it is unclear how many ports have such equipment, particularly in developing countries. Even in developed markets, it is unclear who will certify the equipment or ensure containers have been weighed in compliance with the rules. The United States Coast Guard is the national authority for Solas in the USA, but it is still in the process of developing a policy. The regulation is expected to have the biggest impact on shippers, many of whom may struggle to comply by the deadline, prompting carriers to leave their cargo behind. The cost of weighing the containers will be borne by shippers, too, with added documentation costs likely to be tacked on by the lines. These costs will vary with each carrier and country. Additionally, some cargo insurance policies may not cover the added risks. For example, named peril cargo policies may exclude some losses that could occur during a delay. It is also likely that carriers will modify the indemnity provisions in their contracts and tariffs and these additional indemnities may not be covered by insurance. Over the longer term, the new regulation will make shipping a safer place to work by reducing the catastrophic losses associated with misdeclared containers. In the interim, to minimise disruptions, shippers should carefully review the regulation, and become acquainted with their carriers’ new procedures and tariff revisions. CST

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