Jun 21

Container lines back using current weighing process to meet SOLAS

| Jun 20, 2016 2:57PM EDT  JOC.com

U.S. exporters finally achieved the carrier uniformity they were seeking on the SOLAS container weighing requirement when 19 major container serving the U.S. gave their support for the use of on-terminal scales to comply with the international rule that takes effect on July 1.

The Ocean Carrier Equipment Management Association, which represents 19 of the largest container lines in the U.S. trades, stated that it “strongly supports the use of on-terminal scales to obtain the verified gross mass of containers, as required by the Convention on Safety of Life at Sea.”

The OCEMA announcement is significant because it should allay the concerns of exporters that each line would attempt to impose its own requirements on customers for submitting a VGM. Furthermore, since U.S. ports and terminal operators for years have been using on-terminal truck scales to weigh containers in order to meet Occupational Safety and Health Administration safety requirements, exporters can feel comfortable in knowing that there will be no process changes or delays in the loading of their containerized shipments onto vessels.

“While this is expected to alleviate much of the confusion surrounding VGM and simplify the process for most stakeholders, there may be operational constraints that require different processes for determining and transmitting VGM,” OCEMA said in a statement. “In cases where the Terminal Weighing Approach is not feasible, OCEMA will continue to evaluate ways to achieve VGM compliance.”

Under the International Maritime Organization’s Safety of Life at Sea amendment, passed in May 2014, container lines are obliged to only load containers with a VGM onto a ship. The rule is aimed at cracking down on misdeclared container weights, which have contributed to maritime accidents.

Agricultural exporters meeting in Long Beach at the weekend, three days before the OCEMA terminal-weighing approach was announced, had expressed concerns about a lack of uniformity among the almost two-dozen major container lines in the U.S. trades.

Peter Friedmann, executive director of the Agriculture Transportation Coalition, said as recently as last week AgTCmember companies had been receiving disparate messages from individual carriers as to whether the use of terminal scales was acceptable, or whether the exporters had to sign off on the weights that had been provided by the ports or terminal operators to the shipping lines at the time of loading onto the vessel.

The South Carolina Ports Authority, which operates the marine terminals in Charleston, took the lead among port authorities back in February when Jim Newsome, president and chief executive officer, said Charleston would continue to weigh the combination truck-container units at its in-gates, as it had been doing for the past 25 years, and would provide the weight to the shipping line for use in calculating the VGM.

Newsome told the AgTC conference that exporters at the Port of Charleston will not have to sign each VGM separately. “We will file a tariff rule. The shipper using our port authorizes us to submit the VGM,” Newsome said.

Charleston is one of a half-dozen South Atlantic and Gulf Coast ports that have filed for permission from the Federal Maritime Commission to form a discussion agreement through which they will develop a uniform approach on the VGM requirements, further assuring exporters that processes will be uniform from port to port in the region.

The OCEMA announcement that carriers will accept on-terminal weighing as fulfilling the International Maritime Organization’s SOLAS requirement is important because the regulation specifically states that the shipper is responsible for assuring that the VGM is submitted to the ocean carrier. However, thanks to an “equivalency”declaration by the U.S. Coast Guard, which states that there are a variety of paths to comply with SOLAS, it became clear that a third party could submit the VGM on behalf of the exporter. The Coast Guard is the U.S. enforcement agency for the SOLAS regulation.

Ocean carrier executives realize that in their industry, where company headquarters are scattered throughout Asia and North America, mixed messages were being delivered to U.S. exporters. Richard Craig, CEO of MOL America, said that in the U.S. trades carriers were working with OCEMA on developing a common approach. The process took some time, but exporters should now be assured that carriers all support the OCEMA terminal weighing approach. “We’re in full agreement here,” Craig said.

George Goldman, president of Zim Integrated Shipping Services America, said the common approach of carriers on the terminal-weighing process should also relieve exporters of the fear that carriers would each go their own way on SOLAS in order to seek a competitive advantage. “It is not in our best interest, or yours, to go off on a competitive binge,” Goldman said.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 09

OOCL Adjusting Capacity for 2016 Peak Season

Trans-Pacific carriers are beginning to phase in their new deployments for the peak-shipping season in an attempt to right-size capacity in the largest U.S. trade lane.

Orient Overseas Container Line announced this week that it will suspend for six weeks the Central China service that it operates as part of the G6 Alliance, although the net result of the move will be an increase in capacity because the CC1 service will be replaced with the CC2 service, which features larger ships.

Noel Hacegaba, chief commercial officer at the Port of Long Beach, confirmed that the CC1 service, with vessels having capacities of about 5,000 twenty-foot-equivalent units, is being temporarily suspended. Hacegaba said the CC2 service, which also links Central China and South Korea with the Southern California port complex and Oakland, is returning after having been laid up during the winter months. The CC2 will have vessels with capacities of about 8,000 TEUs, he said.

Since OOCL announced that the CC1 is being suspended for six weeks, the intent is apparently to bring the service back in August. The busiest months of the trans-Pacific shipping season are from August to October, with holiday-season merchandise driving growing cargo volumes.

By temporarily suspending the CC1 service, the G6 carriers are attempting to keep rates from falling while the trade awaits the peak-season buildup. Service contract rates this year were negotiated down to record lows. Spot market rates bottomed out earlier this year and have increased the past two weeks, although they remain below historical levels, as displayed on theJOC.com Market Data Hub.

Trans-Pacific carriers also face the quandary of what to do with the increasing number of mega-ships they have on hand as newly-built vessels with capacities of up to 20,000 TEUs enter their global fleets for use in the Asia-Europe trade. Those mega-ships bump vessels of 8,000- to 10,000-TEU capacity to other trades, such as the trans-Pacific.The good news for carriers, if they can fill the ships, is that 8,000-TEU vessels have lower per-unit carrying costs than the 5,000-TEU ships they are replacing.

The CC1 service had been calling at Busan and Kwangyang, South Korea; Shanghai and Qingdao, China; Los Angeles-Long Beach and Oakland.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 08

6 Month Import Outlook – June 2016

Monthly reports on U.S. containerized imports are painting an uneven picture of what is occurring this year in the merchandise trade from Asia, but retailers anticipate a “significant uptick” in imports this fall peak season, according to the Global Port Tracker.

The monthly publication of the National Retail Federation and Hackett Associates said containerized imports at the major U.S. gateways in April increased 9.1 percent from March, but were down 4.6 percent from April 2015.

“The unusual patterns seen last year in the aftermath of the West Coast ports slowdown are continuing to make valid year-over-year comparisons difficult,” said Jonathan Gold, NRF vice president for supply chain and Customs policy. “Retailers are balancing imports with existing inventories, but consumers can expect to see plenty of merchandise on the shelves for both back-to-school and the holidays.”

Global Port Tracker projects an up-and-down pattern for imports in the next six months. The year-over-year projection for May is a decline of 4.2 percent. Imports in June are projected to be down 1.9 percent, July up 0.2 percent, August down 3 percent, September down 3.5 percent and October up 3.4 percent compared to the same months last year. Global Port Tracker said containerized imports in the first half of 2016 will be only 0.3 percent higher than during the first half of 2015.

The Pacific Maritime Association, which tracks loaded containers moving through the West Coast, has recorded higher volumes than Global Port Tracker. According to the PMA website, containerized imports from January through April were 4.1 percent higher than during the first four months of 2015.

Also, IHS Economist Mario Moreno is more bullish on U.S. containerized imports than is Global Port Tracker. Moreno said U.S. imports in the first quarter increased 7.8 percent from the first quarter of 2015, and he projects that imports for calendar year 2016 will be up 7 percent from last year. Ben Hackett, founder of Hackett Associates, projects flat to maybe 1 percent growth in U.S. imports in 2016.

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“Inventories remain very high, pointing to an overstocked situation that will depress the volume of imports in the coming peak season. Unless inventories drop through further increased consumer spending, import growth will remain sparse,” Hackett said.

Despite the uneven projections for the rest of the year, nothing seems to be helping ocean carriers achieve compensatory rates. The annual service contracts that carriers sign with their steady customers were a disaster this year, averaging about $800 per 40-foot container to the West Coast and around $1,500 to $1,600 per FEU to the East Coast.

Spot rates reported on the Shanghai Containerized Freight Index seem to have bottomed out, and are beginning to increase gradually as cargo volumes build toward the peak fall months. The spot rates last week were $852 per FEU to the West Coast, up 8 percent from the previous week, and $1,685 to the East Coast, up 4 percent from the previous week, as displayed on the JOC.com Market Data Hub. Nevertheless, those rates are far below the spot rates that are normally in effect this time  of year.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 06

Ocean Alliances Guide

A Guide to Ocean Alliances

The airlines you fly with organize themselves in alliances, and so do ocean carriers. Instead of cooperating to move passengers, however, ocean carriers cooperate to move freight.

The four largest ocean alliances move roughly 90% of ocean freight. Do you know how they work? This post tells you how ocean alliances operate and which carriers are in which alliance.

How do ocean alliances operate?

The logic of ocean alliances is similar to the logic of airline alliances, and it goes something like this: Major companies require frequent and predictable transit times.Ocean carriers have a hard time offering this service because ship sizes have gotten too large: Every carrier has been building larger and fewer ships. That’s why they form alliances, which means that a carrier like Maersk can use the space on the vessels of MSC. Under these vessel-sharing schemes, carriers can offer more service without having to buy more vessels.

Here’s how the ocean network can be designed to guarantee regular port service: Let’s say that you want weekly service between Busan and Rotterdam, with various port calls in between. Most carriers run vessels at 18 knots an hour on this tradelane, and one-way transit time is about 5 weeks. In other words, it takes a vessel 10 weeks to loop Busan and Rotterdam. Instead of dedicating 10 vessels to this lane, a carrier can rely also on the vessels of others. So alliances help carriers by letting them sell weekly services while owning fewer vessels.

That’s how it works in principle, anyway; everything is messier in practice. Alliances sometimes require vessels to call on multiple terminals within a single port, making it take longer to unload. Here’s a separate issue: Alliance discussions are supposed to be strictly limited to the coordination of operations, never of sales. But price movements have been suspicious enough of to warrant dawn raids of carrier offices by European Union investigators. Consider that both CKYHE and Ocean 3 have systematically scaled back their weekly departures, citing lower demand. This could be seen as coordination to reduce supply, though we have to mention that national regulators have more recently found that there’s no evidence of price fixing among the biggest carriers.

Alliances can breed strange partnerships. For example, the two largest ocean carriers, Maersk and MSC, have formed an alliance called the 2M. Maersk is rated the highest in terms of service reliability; its average on-time performance recently hit 82%. On the other hand, its partner MSC consistently ranks among the lowest carriers in terms of service reliability. Shippers can suddenly buy “Maersk Line reliability at MSC prices,” or vice versa.

Here are the most important things to know if you ship goods: First, you may need to contract across alliances, not carriers, to manage risk. Because carriers share vessels, shipping with two different carriers might not guarantee that you’re shipping on two different vessels. Second, you may have access to greater geographic coverage through alliances than you thought. And third, you may be able to arrange for additional sailings from your carrier because you have access to other vessels within the alliance.


What are the major ocean alliances?

There are four major alliances, of which only one has a romantic name. We highly recommend reading our piece introducing the major ocean carriers to understand more about each of these companies.

2M: Maersk and MSC

Maersk and MSC have a combined capacity of about 5.7 million TEUs, and that’s about 28% of the overall market share in container capacity. As we stated above, Maersk consistently offers among the highest service reliability, while MSC offers among the lowest. 2M is particularly dominant on the Transatlantic and Europe to Asia routes. It’s weaker on the Transpacific route.

G6: NYK Line, Hapag-Lloyd, OOCL, APL, HMM, MOL

These six carriers have a capacity of about 3.5 million TEUs and a combined market share of 17%. G6 is a player in each of the four major trade lanes, and is strongest especially on the Transatlantic and Transpacific routes.

CKYHE: COSCO, K Line, Yang Ming, Hanjin, Evergreen

The five Asia-based carriers have a capacity of about 3.3 million TEUs and a combined market share of 16.4%. CKYHE is strongest in the Transpacific and Asia to Europe routes, while being a very small player in the Transatlantic route.

Ocean 3: CMA CGM, United Arab Shipping, China Shipping

These three carriers have a capacity of about 3 million TEUs. Their combined market share of container capacity is 14.7%. Ocean 3 is stronger in the Asia to Europe and Europe to Asia routes. It’s weakest in the Transatlantic route.


(Market shares of major trade lanes in graphic form. Insights via Drewry Shipping Consultants.)

Not every alliance covers every major trade route. For example, 2M is largely entirely absent from the Indian subcontinent.


These alliances are pragmatic arrangements, which means that their compositions change every few years. One of the most significant developments in this industry was the proposed alliance between the three largest carriers: Maersk, MSC, and CMA CGM. This new alliance would have been called P3, and together they would havecontrolled 37% of the overall market. The Chinese Ministry of Commerce scrutinized the deal, found it unacceptable that P3 would control 47% of the Asia to Europe lane, and rejected the alliance. CMA CGM promptly left to assemble the new Ocean 3.

Don’t expect these arrangements to stay stable for long. In general, it’s been a time for consolidations in the industry, as carriers are being acquired or merged. Look for developments as CMA CGM buys APL and when COSCO and China Shipping merge.

Source:  Dan Wang