Cascading tonnage a real fear for Asian feeder operators

Bill Smart, CEO of Bengal Tiger Line (BTL), best explains the downcast mood among feeder operators last year as the trading, financial and container industries all suffered meltdown by describing the operating environment as “everyone cooking in the same oil”.

“All container shipping companies had their worst trading record, with a lot of red figures around,” he tells IFW. BTL, which operates around 25 vessels in the 650teu-2,500teu range, primarily on routes linking India to major Asian transhipment hub ports such as Singapore, Colombo and Port Kelang, was not spared the travails of the industry. Smart says that while the company expects a recovery this year, the market remains “very fragile”.

As reported in IFW, the biggest threat to feeder operator prosperity is main line operators (MLOs) succumbing to the temptations of higher freight and charter rates, and taking vessels out of lay-up or slow-steaming strings. Such a scenario, claim leading operators, could devastate rates for feeders as medium-size tonnage is cascaded into markets currently occupied by operators such as BTL. “Rate structures can be destroyed overnight via over-tonnaging,” says Smart.

Singapore-based Sea Consortium (SC), which operates feeder services worldwide for its carrier customers, believes the current boxship orderbook overhang will dog the sector for years. SC’s chartering and purchasing strategy has been reconfigured to “maximise flexibility in the event of the recent demand recovery being threatened by surplus tonnage entering the market”. Larger ships have been chartered-in to generate economies of scale and the carrier has bought two 1,700teu vessels ships, taking advantage of re-sales of newly delivered tonnage.
“We reduced the fleet’s overall size in the third and fourth quarter as volumes declined,” says a spokesman. “But we are now back to 47 ships, and although we have fewer ships than at the August 2008 peak, we are pretty similar on shipboard slots.

“We intend to buy further suitable tonnage this year and next, as such opportunities arise, but our overall policy of chartering the majority of our ships to ensure flexibility has worked well for us for many years, so will continue.” Singapore-listed Samudera Shipping Line (SSL) let a number of charters lapse during last year’s downturn, but claims it is now offering a wider network of intra-Asia services with its fleet of 22 vessels in the 115teu-2,580teu range, after arranging space agreements with other carriers.
“This has allowed us to increase our intra-Asia coverage and also to focus more on feeder operations,” says executive director Dhrubajyoti Das. He says rates have been “warming up” since the fourth quarter of last year, as MLOs have focused on more on long-haul trades. “They are not going after so much intra-Asia business, so the freight and utilisation levels have been better,” he adds. Volumes between China and south-east Asia have increased this year in both directions, although Das says it is still too early to know for sure how closely linked this surge is to the new Asean-China free-trade agreement that came into force at the start of the year.

BTL’s home market of India saw a sudden fall-off of volumes at the end of 2008 and into the first half of 2009, but the domestic economy picked up quickly in the second half, according to Smart. “India was not so exposed to the west’s toxic loans, but did suffer as investment liquidity was withdrawn, and reduced interbank trust restricted the traditional letter of credit transaction process,” he explains. “In terms of GDP growth, India is again robust, but this is partly linked to invisible trade – IT call centres and the service industry – so it is not necessarily reflected in container exports where an imbalance of trade still exists.” The global recovery process will be led by China with the rest of Asia close behind, he believes. “Again the main issue in shipping is the oversupply of both existing and new tonnage, and this will take some time to equalise with trade growth,” he argues. “Volumes have almost returned to 2008 levels, but rates have still to regain their levels – and bunker costs are still a major factor.” (source IFW)

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