SATT Industry News June 2012 - Shippingshipping.co.tt/archive/SATT Industry News June 2012.pdf ·...

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The Shipping Association of Trinidad & Tobago

Industry News JUNE 2012

Energy Natural Gas Changing Industry

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Technology The Buzz on Cargo Security

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Security Training Maritime Professionals

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Regulation IMO to Consider Mandatory Container Weighing A Look at the Law of the Sea

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Port Analysis Communication Gap

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Other News Maersk to Champion Industry Change Latin America in the News

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Business Container Shipping: When Will The Comeback Commence? Shipping Industry Running Out of Oxygen

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INSIDE THIS ISSUE:

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Industry News

CONTAINER SHIPPING: WHEN WILL THE COMEBACK COMMENCE?

June 2012

Talk about ups and downs. In 2009, the container shipping industry lost US$16 bil‐lion. In 2010, it made a profit of $20 billion, and last year was back in the red ink busi‐ness with an $8 billion loss. This year? Break even is about the best prediction avail‐able. By May, shipping lines on the Asia‐Europe trade saw rates surge to 2010 levels with solid spot increases being reported on the transpacific. But the outlook for the rest of the year has industry observers worried. The problem is straightforward: Too much capacity coming online too fast. Ship utilization was very much on the mind of Maersk Line’s new head of south China, David Skov. He realized that the model of the business is changing. “In the old days, the most expen‐sive cost was the ownership of your assets and carriers wanted to utilize them to the highest degree possi‐ble…But now with bunker fuel being so expensive we are entering a time when the highest utilization may not be the model that gives a liner operator the best economy. Lines will have to work out what makes sense. It makes sense for a ship to sail with a lower utilization of, say, 70 percent at those rates than to sail 100 per‐cent full at the old rates. The calculation has to be made by individual lines, but it could be a potential alterna‐tive to lay‐ups.” With the drive to regain profitability, the thought of accepting lower cargo loading could be asking too much, and the pressure to deploy vessels of over 10,000 TEUs will grow with the delivery of each ship. Between now and 2014, 80 percent of all the ships that will be delivered will be VLCCs or ULCCs (ultra large container ships). Ships of this size are limited to operating on the Asia‐Europe trade, and as they come online shipping companies have to cascade capacity to the other trades, keeping rates under pres‐sure. This profit‐sapping surfeit of capacity is giving liner executives grey hairs. While shipping lines are understandably cautious about expressing their overcapacity concerns and the impact of excess tonnage on rates, most industry watchers have been sounding the klaxons for some time. Alphaliner, believes carriers are starting to undercut rates. “Carriers will face a much harder battle to maintain the momentum for further rate increases in the face of rising capacity supply.”

Source: www.marinelink.com

BUSINESS

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Industry News

CONTAINERSHIPPING: WHEN WILL THE COMEBACK COMMENCE? Cont’d

June 2012

The May 1 GRIs, coming after several previous Q1 hikes that increased spot rates on Asia‐Europe from $490 per TEU to $1,934 per box, were not well received by shippers. Alphaliner expects capacity increases to tilt the demand‐supply balance against the carriers as demand growth is expected to be flat or mildly negative in the next three months on the trade. Lines on the transpacific have a different take and expect to see demand for space building through June ‐ August. They are optimistic that 2012 will bring a return of the once traditional peak season for containerized imports into the US and have instituted plans to turn the increased demand into profits via a hefty peak season surcharge (PSS). Asia‐Europe lines are also imposing a PSS, but with the EU in meltdown mode, few believe it will stick. Transpacific Stabilization Agreement (TSA) executive administrator Brian Conrad said the member carriers saw a strong outlook for the coming months, with utilization already in the 95 percent range. The cyclical nature of container shipping means the good years come and go, and the industry will take heart from an HSBC prediction that global trade will grow by 86 percent in the next 15 years. But no carri‐ers can afford to sit and wait for the good times to return. Rising bunker prices are hiking operating costs and as trade volume slumps, lines have been forced to focus on trimming costs and improving efficiency. For top Taiwanese carrier Evergreen Marine, volatility in the business has become normal, every incum‐bent carrier has to be flexible and maintain “a sense of responsibil‐ity.” OOCL plans to leverage its relationships with partners in the Grand and G6 alliances, using larger container vessels on the main trade routes to lower operational costs per slot. The line has also invested in its IT systems, allowing the global flow of cargo around the world to be more efficiently managed and to be more visible. Maersk’s Skov said the short‐term focus of balancing capacity to demand was the first priority, but long term the real focus of lines had to be how to differentiate them and how to add value to customers in order to capture that elusive sustainable profit.

Source: www.marinelink.com

BUSINESS

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Industry News June 2012

The international shipping industry remains hectic. To fight the crisis, shipping compa‐nies are eliminating unprofitable routes and replacing them with direct calls by feeders and signing agreements between two or more carriers to reduce their fleets, sharing the remaining ships. Another measure is to negotiate with shipyards to cancel shipbuilding contracts or delay delivery. A more complex plan is expected to improve cargo volumes and to rein‐troduce the fleet or impose “slow steaming” (speed reduction) to consume less fuel. With the current oversupply of vessels, carriers are competing for cargo and to make decent use of their storage capacity, trying to maintain the level of service. However, it is obvious that they are collecting less on freight rates. Today this is most pronounced because many carriers travel with much of their space empty. So if the shipping compa‐nies aim to optimize capacity of their vessels, they will have to adapt to a freight market and the low availability of all cargo to generate liquidity to fund the high daily operating cost. With this continuing, there have been at least five world‐class carriers which had to be rescued with state money or private injections. Similarly, three of the most important lines of Japan negotiated a merger. At some point there will be a reduction of existing carriers. As one anonymous prestigious international consultant said, in the next 10 to 15 years about 12 shipping companies will disappear from the Top 20 world ranking.

SHIPPING INDUSTRY RUNNING OUT OF OXYGEN

Source: The Bulletin Panama

BUSINESS

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Industry News

NATURAL GAS CHANGING TRANSPORTATION INDUSTRY

June 2012

Unless you’re into nuclear, coal or alternative energy, natural gas is the solution to the energy problem. Such is the same for the shipping trans‐portation industry. After a period of profitability made cozy by cheap and plentiful oil, many modes have felt the pressure of non‐profit as the cost of oil increased and “oil shocks” depressed underlying consumer and overall transportation demand.

Backed by the Environmental Protection Agency (EPA), natural gas has come to save the day without most of the environmental degradation. More than an electricity source, many trucking companies hope to re‐place diesel‐powered tractors with natural gas. Historically, the two biggest obstacles have been the lack of a widespread fueling network and limited engine size. Both problems, however, are being overcome by the increasing demand created by the immense, available savings. Future changes might be even more far‐reaching. Whereas port facilities’ efforts to import LNG were held off by outbreaks of NIMBY‐ism, there appears to be much less resistance to terminals being built for ex‐port. Ocean transportation of LNG is a profitable niche for a handful of carriers; with high barriers to entry, the financial benefits are more sustainable than other trades. (Many observers believe that the three Japa‐nese container lines have managed to stay in business the past 15 years solely because of LNG imports from Qatar. Non‐Japanese lines have been excluded from this business.) Perhaps the biggest impact of natural gas may be accelerated on‐shoring. As energy costs exceed labor costs in the manufacturing proc‐ess, low‐cost energy from natural gas may help resuscitate U.S. manu‐facturing. Even Mexico — with its high fuel costs — could be adversely affected. Natural gas may indeed be an energy game‐changer for this century. One thing is for certain: It’s already transforming what — and how — we move.

Source: The Journal of Commerce

ENERGY

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Of late, the environment has been the source of many a solution. Scientists have recently discovered a mushroom that could possibly rid the earth of the dreaded polyurethane and more and more people are looking for holistic remedies to their ailments before subscribing to the latest concoction offered by the pharmaceutical company. Now, the latest thing in port security technology comes in the form of an insect. And not the one you may think.

A UK‐based company has brought together nature and technology, for bulk cargo screen‐ing. Scientists at Inscentinel, have devised an ingenious way of harnessing the sniffer bee’s powerful sense of smell to detect explosive material and drugs hidden in cargo. The training of the bees is a relatively simple process: a honeybee sticks out its proboscis

and gets a touch of sugar water on its antenna. At that point, if it were exposed to the smell of explosives, it will associate explosives with sugar water and thereafter stick its tongue out on the exposure to TNT, for example. Once fully trained the bees can be used in a handheld sensor, the Vasor136, where the entire proc‐ess lasts just six seconds resulting in a simple “yes” or “no” reading on an LCD screen. Inscentinel claim that its automatic training unit can produce 500 trained sniffer bees in just five hours ‐ all the more remarkable when you consider that it can take up to six months to train a single sniffer dog. The automation on the Vasor136 also means that anyone with minimal training can operate the system, meaning, unlike in the case of sniffer dogs, no special trainer or handler is required. The costs involved with the training of honey bees are minimal when you consider the US federal govern‐ment, caters for $48 million in its annual expenditure for canine security. The bee sensor system is a machine and, once developed into a product, the cost is low. The training of bees requires only sugar water (no more expensive than dog food), while the cost of a honeybee itself is relatively cheap. A bee hive can contain up to 60,000 bees and a local beekeeper can manage 20 hives single handedly. However, perhaps the most sig‐nificant advantage over the use of canines is the ability to account for the activities 24/7, as once housed in the bee holder they are monitored continuously by the electronics. Currently, Inscentinel is at the stage of attracting investors to raise finance to complete the prototyping and looking for security companies to run the technology in a field test.

THE FUTURE’S BUZZING FOR CARGO SECURITY

Source: Port Technology

TECHNOLOGY

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WHEN IS THE MARITIME INDUSTRY GOING TO TRAIN MARITIME PROFESSIONALS? The nature of maritime security is usually underrated and misunder‐stood ‐‐ even by its industry leaders. It may be time to think beyond pirate attacks in Africa and consider a more universal approach to the security and defense of the maritime industry as a whole; this includes shipboard, offshore facility, port facility security and its interactions with other agencies. Security is also an important con‐cern dockside, at anchor, and underway. It is paramount in Somali and Nigerian waters; equally so in Belize, Venezuela, Brazil, Vietnam, and the Philippines. It is high time that Maritime Security and Defense Operative be seen as a profession; perhaps being identified as a recognized crew position. Maritime security companies often assign personnel with extensive firearms capabilities to defend commercial vessels in high risk regions. These personnel are typically highly qualified “shooters”, how‐ever, they are not trained as maritime security professionals. Like the military, coast guard, rangers etc. these professionals should receive both classroom and real‐world tactical training for the maritime en‐vironment before arriving at their assignments. The maritime industry is run by global commerce; this means that operators, insurance companies, associations, and governing organizations are the drivers to its cohesive operational decisions. If the industry recognizes the need for appropriate training, it will be implemented. The positives to better maritime security and defense training are that losses will de‐crease immensely, types and numbers of threatening situations will reduce, and the industry will be able to provide a safer work environment. The greatest negatives may be governments forcing military style approaches to training rather than training specifically developed to meet civilian needs in a global civilian industry with a history much longer than any military organization on the earth.

Source: The Maritime Executive

SECURITY

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WHEN IS THE MARITIME INDUSTRY GOING TO TRAIN MARITIME PROFESSIONALS? Cont’d The military model is failing us today because maritime security is not the end of military duty. Mari‐time security and defense should be the beginning of a new profession. The greatest threat to effective training is micro‐managing government regulations and regulators; should governmental micro‐managing occur, rather than letting maritime security training be reflective of the industry, training presentation and development will be stifled and will no longer be able to meet developing threats in the dynamic maritime security environment. This would result in a return to the same failures being experienced. Maritime Security and Defense Operative should become a marine profession. Those practicing it should carry an industry recognized credential. As any profession, especially in the highly regulated maritime industry, it should be regulated. The courses should be academically sound and have recognition within higher education or acade‐mia. The course content should have direct input from the maritime industry and controlled by experi‐ence, precedent, tradition, and convention, but NOT by or through government mandates. Just as an organization, for quality assurance purposes, should not audit itself, operational security companies and contractors should NOT be trainers. However, good training companies will incorporate the les‐sons learned by field operatives. This structure should provide the industry with effective security and defense, reduce costs, reduce losses, result in greater mariner retention and confidence, and help in growing the industry safely and more profitably.

Source: The Maritime Executive

SECURITY

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Container line, labor and terminal operator groups, want the International Maritime Organization (IMO) to require laden containers to be weighed before they are loaded onto ships, rather than just taking exporters’ word on the shipments' weight. The IMO is expected to consider the proposal aimed at making transport safer on ships, docks and roadways in September 2012. The proposal is co‐sponsored by the Baltic and International Maritime Council, the Interna‐tional Association of Ports and Harbors (IAPH), the International Chamber of Shipping, the International Trans‐port Workers’ Federation and the World Shipping Council. “The technology exists to weigh containers accurately and efficiently, and it should be a universal, required practice,” said Dr. Geraldine Knatz, president of IAPH. Under the Safety of Life at Sea Convention, shippers are required to declare the weight of the container, but the cargo interests often fail to do so, largely because there is no oversight. International Longshoremen’s Associa‐tion President Harold Daggett has listed weighing of import containers as a top demand in current East and Gulf coast port labor negotiations. Waterfront management says weighing import containers before they’re released from terminals would create congestion and delays and add unnecessary costs.

CONTAINER LINES WANT IMO TO REQUIRE WEIGHING OF LADEN CONTAINERS

Source: The Journal of Commerce

REGULATION

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THE RISE OF UN DERANGEMENT SYNDROME

Source: www.theatlantic.com

The debate over whether or not the US Congress should finally ratify the Law of the Sea Treaty has triggered a full‐blown outbreak of UN Derangement Syndrome, the primary symptom of which is an overblown fear of international organizations. The UN’s Law of the Sea Treaty provides international rules for protecting the freedom of the seas, establishing national mari‐time zones, and accessing deep‐sea resources. For the 160 coun‐tries that ratified the treaty (Trinidad & Tobago being one), it's a largely uncontroversial pact that cre‐ates order and predictability over maritime issues. In the US, however, a small but motivated lobby of unilateralists, oppose ratification. As argued by a group called America's Survival, "Our sovereignty is at risk and in danger…If we don't defeat this treaty, the battle against the New World Order will be lost." Don‐ald Rumsfeld wrote in his memoirs that the Law of the Sea: "would put all natural resources found in the seabeds of international waters ... into the hands of what was ominously called the International Seabed Authority.” (ISA). Twenty‐seven senators signed a letter opposing ratification of the treaty. They say that the treaty would undermine U.S. "maritime security," redistribute wealth "from developed to undevel‐oped nations," create "environmental regulation over virtually all sources of pollution," and surrender American sovereignty to a "supranational government." Every major U.S. industry that works in the ocean, however, is in favor, including shipping, fishing, telecommunications, and energy companies, because legal certainty will make it much easier for them to invest millions of dollars in offshore enterprises. The ISA oversees a handful of businesses that explore for polymetallic nodules, and promotes research on marine science. These nodules, are rock concretions formed of concentric layers of iron and manga‐nese hydroxides around a core which sometimes transforms into manganese minerals by crystallization. In instances of abundance, it is considered of economic interest. As marine technology improves, the ISA may eventually manage more deep‐sea operations. At the mo‐ment, the US only has observer status alongside other holdouts like North Korea, Iran, Syria, and Vene‐zuela. If the United States joins the ISA, it will have a permanent seat on the organization's governing council, with veto power over any expenditure. If the United States wants to rule the waves, it shouldn't waive the rules.

REGULATION

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For a business that is essentially a service provider, do ports really “engage” their customers? Do they listen to the concerns of the lines who are their direct clients, or the shippers and importers who provide the cargo flows across the wharves? Port Strategy obtained three diverse views – from a major container line, a ship‐owner lobby group and a shippers’ body – and the consensus is that port managers need to up the ante on their customer communication. The Carrier

For carriers, terminal cost is one of their largest cost components. Head of termi‐nals for Maersk Line, Tommy Nilsson, says the quality of the product differs from terminal to terminal but it is important that terminal operators gain a better under‐standing of lines’ requirements and work more towards meeting those. In doing so, they can differentiate themselves from the competition. According to Mr. Nilsson, only some operators are working pro‐actively to gear and position themselves for

future demand. Some small and medium‐sized ports claim this is due to the cascade effect of new tonnage. But others served by more predictable trades may be guilty of reactive behaviour. Mr. Nilsson said, “Often terminals perceive their service levels to be good. But the question is if they are good enough! ” The Body Representative body Shipping Australia Ltd (SAL) is familiar with port problems. SAL has criticised Australian

ports for the lack of adequate facilities for breakbulk such as sheds for coiled and rolled steel, while the main capital city ports Sydney and Melbourne, have not deliv‐ered the productivity that lines require. Furthermore, Chief executive Llew Russell, re‐vealed that getting sufficient empty container park capacity has been a problem never solved. Overall, however, he feels container ports in Australia have been proactive in

discussing their future plans and consulting stakeholders. Examples include the introduction by Sydney Ports Corporation of the Port Botany Landside Logistics Strategy (PBLIS) which has significantly improved truck turn‐around in the terminals; the introduction of weigh‐in‐motion systems; the development of an inland intermodal terminal; the proposed transfer of the motor vehicles trade from Melbourne to Geelong and the future develop‐ment of a container port. On a practical level, ports can also improve service levels by collecting and disseminat‐ing data and information on how the port is operating (e.g. achieving productivity targets) and negotiating leases with container terminal operators that include key performance indicators.

COMMUNICATION GAP

Source: Port Strategy

PORT ANALYSIS

Continued on page 12

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The Lobby The New Zealand Shippers’ Council, which produced a “Bigger Ships” report in 2010 urging NZ ports to progress expansion plans to accommodate large vessels is gratified to see the major port companies consider the information; however, often missed is the realisation that all four major ports need to be capable of handling ships of around 7,000 teu by 2020 and two others three years from now. The Shippers’ Council wants their ports moving forward in a sensible and methodical way.

Asked if the council intended for the “Bigger Ships” report to directly influ‐ence port management and not just the shipping lines, Chairman Greg Steed said its purpose was to influence all stakeholders in the supply chain including all levels of government. He agreed on the need for ports to have direct inter‐face not just with lines but with the exporter and importer, and expressed many already are looking beyond carriers to form relationships with shippers.

COMMUNICATION GAP Cont’d

Source: Port Strategy

PORT ANALYSIS

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In making a call for change, especially on a public platform, one must be prepared to take the first step into the unknown. Such is the case for Maersk CEO Eivind Kolding. After unveiling the company's new Manifesto in June 2012 at a Terminal Operations Conference in Europe, Kolding got overwhelming support from shippers at large, however, they now challenge him to action. In his keynote speech, Kolding outlined the three principles that will revolutionise the way Maersk Line oper‐ates: reliability, ease of business and transparent environmental performance. The European Shippers Council (ESC) agreed with and endorsed Maersk's sentiments that the industry needs to make those changes, to “assure itself of a license to operate in the future.” However, they have warned Maersk that should change not be forthcoming, the company may have put themselves in the compromising position of setting the example. A somber warning was issued by ESC citing the legacy of the shipping line as its biggest hurdle. “We hope Maersk can set a shining example for other carri‐ers to follow suit by changing their business models to focus on their customers’ long term needs. But shippers are impatient for change, so the pressure is on for changes to take place quickly.”

EUROPEAN SHIPPERS EMBRACE MAERSK CEO’S CALL FOR INDUSTRY CHANGE

Source: Port Technology

OTHER NEWS

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LATIN AMERICAN CANALS GET INTERNATIONAL ATTENTION

Sources: Russia Today, The Voice of Russia, MSN Phillipines, Fox News Latino, The Financial Times

Panama isn’t the only port country holding the attention of the international media. Ever since Nicaragua announced plans to build its own canal in June 2012, reports have been popping up in the most untraditional of sources for maritime and shipping news. The idea of building a channel across Nicaragua is not a new one. As far back as the 16th century, the thought of a trade way between Lake Nicaragua and the San Juan River had been sailing through the minds of shippers. It wasn’t until 1889 that the Nicaraguan Canal Company – after signing an agreement with Nicaragua and Costa Rica – got down to work. Money, however, was an issue. Then Panama took over. And the rest as they say is history, present and future. Now over a century later, Russian media was one of the first to report on the proposed construction announcing the move as, “long overdue.” From the Russian point of view, a “new Nicaraguan canal would be in high demand” estimating costs as, “not too expensive due to natural reasons.” Considering that Russia is one of the interested investors in the project, the optimistic outlook is understandable. From a western perspective, the announcement was simply a political ploy aimed at deflecting attention from the poverty issue as headlined by MSN Philippines. According to their analysts the project is, “financially untenable” and, "represents the summit of Nicaragua's historic aspiration of profiting from its geography." Of course the US is not listed as a potential investor, probably due to the fact the initial venture was, “stalemated by US investors' concerns about poverty and political instability.” Has anything changed since? Clearly not, as Nicaragua, is currently the, “second poorest country in the Americas after Haiti.” And given the “international economic crisis and Nicaragua's own political instability,” it is unlikely that the project will survive short‐term considerations. The Financial Times’ concern leans more towards Costa Rica. Dredging up an old wound of 2010 when Nicaragua sparked a diplomatic row with its neighbour when it began dredging the San Juan river, leading Costa Rica to accuse it of surreptitiously attempting to invade a nearby island. The dispute reached The Hague and ended in new border treaties. Costa Rican officials have described the project as “pharaonic”. Warning that, plans for an interoceanic canal cannot be considered without requesting and hearing Costa Rica's opinion. An opinion, which in this case, would be "binding." It is to be noted that on 3 July 2012, the Government of Nicaragua ap‐proved a bill for the creation of the canal.

OTHER NEWS

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