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   Vol. 14 No. 12
Saturday February 7, 2015

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West Coast  Port Meltdown
   According to reports, the west coast of the United States could experience a total shutdown.
   In this recent photo, incoming container ships queue up outside the Port of Los Angeles waiting for dock space.
   Employers could lock out West Coast dockworkers in as few as five days if the two sides do not reach a new contract.
   That warning came Wednesday, Feb. 4, 2015, from the head of a maritime association that is negotiating a new deal with a union representing longshoremen at 29 ports, which handle about $1 trillion in trade annually.
   The shipping lines employer group says they have put a new contract proposal on the table for West Coast dockworkers.
   Pacific Maritime Assn. President Jim McKenna pleaded that International Longshore and Warehouse Union accept a five-year “all-in” contract proposal and end alleged slowdown tactics employers say have crippled West Coast ports, including Los Angeles and Long Beach.
   McKenna said the already congested ports are roughly five to 10 days from a meltdown.
“We are at a critical time and this can't keep going forever,” McKenna added.

A Landmark Series By Richard Malkin

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Jan Krems True Confession Oliver Evans True Confession Dan Muscatello
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Dawn Of Ocean Mega Alliances

     In early February two of Europe’s largest container lines announced they would further enhance their cooperation. CMA CGM and Hamburg Süd were already offering joint services from North Europe to South America and the Caribbean, but starting in May there will be further cooperation.
     Subject to FMC approval, this will see the lines start a new pendulum service that will connect Asia, the Caribbean, the United States East Coast, and North Europe. And from July onwards the lines will, together with further partners, revamp their services between Asia and both the East and West Coast of South America.
     The announcement was significant because German line Hamburg Süd was the last major line to commit itself to the mega-alliance model that has carved up global container shipping capacity in less than a year.
     In fact, since Chinese regulators blocked the huge P3 merger—which would have joined CMA CGM, Maersk, and MSC— last summer, lines have simply sought out new arrangements with ever more vigor, rather than discard the strategy.
     CMA CGM, the world’s third largest container carrier with around 9 percent, behind only Maersk (15 percent) and MSC (13 percent), has been among the most eager to move on to fresh pastures after the P3 debacle.

What Is Going On

     Apart from its arrangement with Hamburg Süd, CMA CGM is also now a key member of Ocean Three with China Shipping and United Arab Shipping Co. Ocean Three represents around 21 percent of global container capacity, according to Drewry. This compares with the 2M alliance, which represents 31 percent of the market, and the CKYHE and G6 alliances with 24 percent of the market each.
     In the short period of time since P3 was blocked, therefore, the global container shipping business has, in effect, been split into four major alliances supplemented by a range of slot deals and service arrangements with the few carriers, such as Hamburg Süd, which had previously refused to follow the crowd.

Driving Factors

     The drive behind mega-alliances comes from lines seeking to lower port and shipping costs and reduce the impact of excess supply at a time when they still need to invest in new ultra large container ships which offer reduced fuel usage and greater economies of scale to remain competitive.
     Shippers have generally taken fright at the thought of such consolidation. Although lines are not allowed to jointly set prices, they believe that the ability to manage capacity could effectively stop rates falling freely. They are also concerned that service reliability and port congestion could both deteriorate.
     But so far at least, most of those fears have proved unfounded. Certainly regulators are keeping a close eye on pricing arrangements. Rate peaks and troughs at the start of 2015 on key trades have been marked, but the pattern is not dissimilar to 2014 with lines continually attempting to implement new rate increases or surcharges which are then quickly eroded by the market.

Port Issues

     Of course, the pricing landscape has been clouded in the first quarter due to U.S. West Coast port congestion and union issues, which are taking capacity out of the market and bumping up prices, and preparations for Chinese New Year, which are adding to the rush to load ex-China prior to factory closures. Exactly how rates are being affected by the new mega-alliances will not, therefore, become clearer until later in the year.
     In terms of performance, the mega alliances do not have to reach too high to improve matters this year compared to last. According to SeaIntel Maritime Analysis, 19 of 20 shipping lines recorded a decline in on-time performance during 2014, with CSAV the only exception.

Word Up

     Of the analysts, Drewry has been the early leader in examining exactly how the mega alliances are influencing liner behavior on key routes. In one recent report, the analyst found that on the key Asia-North Europe lane, the four major alliances now control almost all of the services. However, more positively, the number of services and available capacity has barely changed.
     “Many feared that the formation of the mega-alliances would intensify the homogenization of the industry whereby carriers can only compete with one another on price as they all have the same services,” said Drewry. “However, closer inspection of the schedules reveals that the alliances are far from uniform and between them they have created a pretty well-balanced network with wide port coverage at both ends of the trade.”
     Drewry also concluded that for time-sensitive shippers the alliances were providing a wide array of transit times. From Shanghai to Rotterdam transit times range from the quickest time being 28 days to the slowest time being 36 days, for example.
     “With each alliance having a slight geographical bias, often dictated by members’ terminals interests, they all can boast some transit time supremacy somewhere,” said Drewry.
     “Interestingly, the advent of the new alliances looks to have increased the average speeds of ships on the trade, which is probably a consequence of both dramatically lower bunker fuel costs and the desire of carriers to make their new services more attractive to customers.
     “Drewry estimates that average westbound service speeds have sped up to 18.5 knots; versus 17.8kts as measured in December. The 2M again leads the way with an average speed of 19.8kts, while the G6 brings up the rear on 17.5kts.”
     However, Drewry adds the caveat that its analysis was based on scheduled transit times and “shippers will be well aware carriers do not have a great track record of delivering cargo on-time” with Drewry’s Carrier Performance Insight finding that reliability in the Asia-Europe trade was only 64 percent in December.

Looking Ahead

     So while the pricing and service implications of the new liner mega-alliances are still not entirely clear at this early stage, from a shippers’ point of view, their worst fears have so far not materialized.

Chuckles For February 6, 2014

Mom We Are Coming Home
A Chinese Tibetan mother holds her child at the Xining Railway Station before going back home for the upcoming Spring Festival to celebrate the Chinese Lunar New Year in Xining city, northwest China's Qinghai province.

     A crowd of passengers queue up at counters to get their boarding passes at the Beijing Capital International Airport in Beijing, China, February 4, 2015.
     China transportation is currently geared up at full capacity to handle the annual surge of travelers at the start of the 40-day Spring Festival holiday rush, as everybody is on the move to get home to celebrate Chinese Lunar New Year.
     More than one million trips were made via 12,500 airline flights on the first day of the holiday period, known as Chunyun, which will run until March 16.
     China Railway Corp, operator of the country's trains, said it handled 6 million trips on Wednesday.
     Chinese tradition holds that people should return home and spend Spring Festival with their families.
     The observance creates an annual travel rush that may be the largest recurrent human migration in the world.
     The Spring Festival feast day falls on February 19 this year.
     During the travel peak in 2014, Chinese passengers made more than 3.6 billion trips. Among them, about 3.3 billion were made by road, 266 million by rail, 44 million by air, and 42 million by ship.

Going Home Video

Oil Dip Fuels India Cargo

     The sharp fall in global crude oil prices by nearly 35 percent over the last year has awakened the freight forwarding industry in India. Other than the forwarders, it is the express industry that uses airlines. So, it was not surprising when the Express Industry Council of India (EICI), the apex body of express delivery service providers in India, demanded the immediate withdrawal of Fuel Surcharge (FSC) levied by domestic airlines.
     Presently, the domestic airlines in the country charge between Rs 13 to Rs 16.50 per kilogram (0.21-0.28 cents) as fuel surcharge.
     The EICI has also asked the Civil Aviation Ministry and the Director General of Civil Aviation (DGCA) to look into the matter and ensure that the domestic carriers set right the FSC and bring about a transparent and market-driven mechanism for the determination of the surcharge in the future.
     Fuel surcharge on shipments is levied on a per kilogram basis and was introduced in May 2008 to counter the volatility in fuel prices. Air Turbine Fuel (ATF) prices then were Rs 58387/kl (at Delhi Airport). The FSC were then fixed by airlines at Rs 5/kg for cargo shipments. “Currently, the ATF price is at Rs 52423/kl, which is 10 percent lower than the 2008 price, but the FSC charged is as high as Rs 16.50/kg for the cargo shipments. In the past as well when fuel prices fell, airlines continued to increase their FSC.
     “Airlines need to appreciate that FSC is purely a tool to mitigate volatility and cannot be part of cargo rates,” said an agitated Vijay Kumar, chief operating officer, Express Industry Council of India.
Globally, airlines benchmark FSCs to a reference like the Brent crude movement or an index like USGC (published by US Department of Energy). Even in India, Blue Dart Aviation, a cargo airline references their FSC to a Brent index. Doing that would be fair to the trade and bring down transaction costs of the Indian businesses using air cargo, including the large number of micro exporters and medium and small industries, a key component of the government’s thrust to industrialize the country, Vijay Kumar said.
     Kumar went on to give the example of IndiGo: The airline charged Rs 5/kg as FSC in May 2008, while in May 2014 it charged Rs 15/k when ATF was Rs 71034/kl, and Rs 16.50 in December 2014 when the fuel price was Rs 59943/kl. Other carriers were also levying FSC at around the same rates.      Hence, the subsequent demand by the industry to stop the fuel surcharge.
     Meanwhile, EICI, along with a large number of exporters, is hoping that India’s Foreign Trade Policy (FTP) does come through. It has been more talked about than seen. Once the FTP—valid for a five-year period with the latest one from 2014-19—is notified by the Central Board of Excise and Customs (CBEC), it will allow small exporters to send out shipments at cheaper rates.
     Exporters sending small shipments through the cargo option have to do a lot of paperwork. A Custom clearance charge has to be paid by these exporters per package, which is often more than the price of the contents in the package. These exporters are hoping that with the FTP, they would also be able to send goods abroad to consumers buying on the net.
     Courier operators believe that the FTP will help small and micro exporters reach their global consumers because the country’s exporters would not have to go through a number of cogs in the freight chain to deliver goods to the customer. These include transportation at the origin and the destination, air transport, clearing agent, etc. Once the way is clear for couriers, not only would tariffs for small export packages reduce substantially but these will basically be done by a single entity.
Tirthankar Ghosh

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Vol 14. No. 9
The Blizzard That Wasn't
Ayesha Hassan Doing The Heavylifting
Chuckles For January 29, 2015
CAL & ATC Team Up
Flanagan's Capital Talk
Cargo Awards Leave Some At Loss
Vol 14. No. 10
Hong Kong Tops Again
Wish We Said That—Bill Boesch

Best In Show—FIATA Not Yada Yada
Chuckles For February 2, 2015
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