The great disruption
NORMALLY these annual trade reviews in Daily Cargo News devote time and space to analysing 12 months of trends in cargo flows, freight rates and service changes, and looking at what lies ahead.
But this year there’s “just too much going on right now”, as one line executive put it, to dwell too long in the past.
Despite fears expressed in last year’s review, following a rather dire first quarter, volumes and rates recovered reasonably well to deliver a “pretty consistent” 2023, carriers say. There were slight variations, but 85% utilisation would be considered a disappointment: “We budgeted for 100% and we very nearly achieved that. Southbound took a dive but reloaded and we’ve been filling every northbound slot, deadweighting out and topping with empties when we can. In fact if a ship goes out with just one empty slot I’ll get a ‘please explain’ from HQ,” one local boss said.
“I suppose you could say there have been the usual fluctuations,” another added. “When other (east-west) trades are soft, lines’ interest in SEA-Australia and reverse increases, but when things perk up, as they have done thanks to the Red Sea crisis, we slip down the attention list. Instead, we come under pressure not to ship out heavy boxes but to evacuate as many MTs as we can so they can be re-used ASAP on better-paying trades.”
We come under pressure not to ship out heavy boxes but to evacuate as many MTs as we can so they can be re-used ASAP on better-paying trades.
The same applies to ships themselves. “It doesn’t matter if it’s a 2000, a 4250 or a 10,000 TEUer; HQ wants it where it can earn the most. It also means there’s no cover for drydockings, or for congestion delays, and there’s been plenty of those this year.”
This is no comfort for local management trying to keep faith with customers and keep their P&Ls afloat, “but we just take orders” is the common refrain. A prime example was the ANL-operated APL Oregon (6350 TEU) which was scheduled to be redeployed from the AAX-S service to AAX-E but was instead diverted to inaugurate CMA CGM’s “French Peak Service” from Asia to Europe, at a time when E-W rates were approaching US$10,000/TEU, or at least five times what the ship could earn down here.
Congestion indigestion
The forced diversion of vessels away from the dangerous Red Sea transit, and thus the Suez Canal route between Asia, the Mediterranean and Europe, has had a considerable influence this year on container services between Australasia and South East Asia and points beyond.
The world’s second busiest container port, Singapore, has felt the impact more than most with, at one point in May, boxboats waiting for up to a week for a berth that would normally be available within half a day. Total dwell times exceeded 10 days.
Although the Maritime & Port Authority of Singapore was able reduce this substantially as weeks wore on, the congestion had a compounding effect and by early July nearly all containerships arriving at the port were arriving late, due to the domino effect of schedule disruptions. Year-to-date at that time 90% of arrivals were not berthing on time.
According to Linerlytica data vessel numbers and total capacity waiting to berth soared from 42,290 on 1 May to 286,778 as at mid to late June.
There were two further complications: a major oil spill following a collision between a dredger and a bunker tanker on 14 June restricted activities at the important Pasir Panjang Terminal until it could be cleaned up; and, with Singapore already the world’s largest bunkering location, dozens of extra ships needing to take “the long way around” the Cape of Good Hope to Europe were calling for fuel.
Ships on end-to-end SEA-Australasia services had little option but to deal with the delays as best as possible, resulting in a number of port rotation changes and a series of one-week or greater schedule slides that particularly affected Fremantle shuttles and NZ services – and continue to do so – though none were immune.
Carriers with through service sought alternatives to Singapore, however, resulting in a spread of the congestion contagion to hub ports north, east and west. Malaysia’s Port Klang became an early casualty, with 20 ships reported anchored off in early July – although Maersk claimed its operated and part-owned Port of Tanjung Pelepas remained untroubled, an assertion later walked back.
Meanwhile, further afield problems were reported in mainland Chinese ports Ningbo and Qingdao, at Taiwan’s Kaohsiung – which at one stage had the longest queue – and at India’s Mundra and, more crucially, the main ISC hub, Sri Lanka’s Colombo.
The latter’s problems in turn led to further disruption as carriers desperate to maintain schedule on peak-season east-west service began to skip the ports altogether, stranding Indian and other ISC exports and imports as transhipment volumes fell, while some lines were said to be cherry-picking high-value, well-paying cargoes during abbreviated port stays and leaving the rest behind.
At Chattogram (Chittagong) in early August all available port land and beyond was choked with containers, stymying exports from Bangladesh, the world’s third-largest garment producer. Shipping lines attempted to alleviate the situation by adding vessels, but this was effectively negated when later in the month floods cut roads to the port, leaving a 40-kilometre queue of trucks stranded in waist-deep water.
The overhaul
There had already been service changes across the SEA spectrum since the last review, before MSC dropped an absolute bombshell at the end of July.
On 22 August 2023 Zim/Gold Star Line announced a massive restructure of their local services, with the China-focused CAX turned into ZAX and rolled into a VSA with MSC’s Panda. Simultaneously the TFX service was cancelled and instead Zim/GSL took slots on MSC’s Capricorn and New Kiwi Express. The N2A trans-Tasman service was abandoned.
From end-November 2023 Swire Shipping ceased to provide a ship for its NWD service and instead took slots on loop two of ANL’s Singapore-NW Australia PAX service which offers one sailing every ten days Singapore, Port Hedland, Dampier, Singapore.
In January, MSC and CMA CGM formalised the diversion of the AES/NEMO service around the Cape of Good Hope to avoid Red Sea hostilities; northbound calls at Singapore, Ennore and Colombo have been maintained but affected by congestion.
In mid-February ANL, COSCO SL and subsidiary OOCL announced their respective AAX-W and ASAX/AWX services would be combined from the end of that month to operate three larger ships rotating Singapore, Fremantle, Port Klang, Singapore weekly. The lines have maintained their service designations.
Fast forward to 22 July, which when Maersk Line began diverting its NZ-SEA Southern Star service into Melbourne northbound on a fortnightly basis, adding a premium option for shippers seeking more supply chain options during the Q3 Australian export peak, with “best-in-class lead times into key transhipment hubs in South East Asia and onward connections to global markets”. These calls, planned to continue until end-September, gave Maersk an 11-day faster transit to SEA than its own Greater Australia Connect (GAC, aka AAX-S). (More on this later.) Maersk also sent two southbound Southern Star sailings via Fremantle, at the expense of Port Botany calls, in order to compensate for missed SEA-Fremantle sailings.
Earlier in July the market was awash with reports MSC had ceased taking August bookings for its Capricorn and Express services in an effort to clear a huge backlog of rolled cargo in Singapore. But then that 25 July bombshell: both services were to be suspended, with no immediate replacement, with final s/b sailings (at that stage) expected to depart on 20 August.
Gobsmacked
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As the accompanying table shows, in one fell swoop MSC removed around a nominal 332,500 TEU – assuming 50 voyages per year for each service – from the SEA market. Instead, the Swiss carrier is transferring nine of the ships to a reborn Wallaby service, rotating Hong Kong, Yantian, Xiamen, Shanghai, Ningbo, Port Botany, Melbourne, Auckland, Bluff, Lyttelton, Wellington, Napier, Tauranga, Melbourne, Brisbane, Hong Kong. And it will beef up its Noumea Shuttle to also call Nelson and Tauranga to improve NZ connections.
To put it mildly, rivals and customers were gobsmacked.
Withdrawing Capricorn and Kiwi Express “saves” at least eight ships – though it seems more than ironic that the carrier with world’s largest fleet, and thus most likely to be able to meet increased demand, should be the one to actually increase that demand. As of 24 August, Alphaliner listed MSC with 851 vessels under its control, with a total capacity of 6,066,799 TEU – and a further 132, of 1,822,588 TEU on order. Surely a few could still be spared for a SEA service?
Meanwhile Zim – remember, a slot-charterer on Capricorn and Kiwi in a deal arranged at the same time as the Israeli company entered its VSA with MSC for the ZAX/Panda China service – is in a world of pain.
Although shipper sources estimate Zim’s allocation was only in the order of 250-300 TEU per sailing on each service that provided enough to enable the line to maintain coverage of customers – especially in NZ – who had used the defunct N2A and TFX services.
Insiders claim Zim only found out about the demise of Capricorn and Kiwi when they read that 25 July public announcement from Geneva, and the carrier has been scrambling ever since to find a replacement arrangement. Given comments in last year’s review that rivals would be quite happy to see Zim “disappear” it’s unsurprising that, at time of writing, the company had not been able to announce any new arrangements, issuing only “placeholder” advisories to customers promising they are exploring a new service for Q4 2024. (Notably, MSC has not made any Wallaby allocation available to Zim).
Also in a world of pain is Port Adelaide, where Capricorn offered the only southbound call from SEA and also carried a substantial amount of transhipped China cargo for South Australia. The state still has excellent export coverage, via AAX-S/GAC, AAA2, ASAL and AES/NEMO, but Capricorn also played a major role in providing boxes to be refilled with outbound freight for AES. Equipment shortages are no help to anyone.
Adelaide was earlier hurt by the reorganisation that begat AAX-S/GAC, which also resulted in the loss of an eastbound call: every partner line has gone significantly backwards in volume since the new format was introduced.
Effectively they [MSC] have walked away from SA and WA … If you go back 20 years, the MSC Oceania network was almost built around Fremantle.
Oddly, Fremantle has gone from being over-serviced to under-serviced, given it has no N&EA direct calls. Thanks to the hub’s congestion, each of the SEA shuttles has seen frequency disrupted, with schedule slides being just one outcome. Of course each one-week slide is a sailing lost, creating an ongoing conundrum of rolled cargo just when volumes are strong and demand high. Capricorn’s departure exacerbates the situation.
“Effectively they [MSC] have walked away from SA and WA,” one observer told DCN. “If you go back 20 years, the MSC Oceania network was almost built around Fremantle. I can recall seeing three vessels on the berth at the one time … and now they will get a single weekly [AES] call – only when they decide to call!” [Fremantle and Port Adelaide calls are often dropped to recover schedule.]
And then there’s New Zealand. The NZ Council of Cargo Owners estimates the cancellation of the two services represents a loss of 150,000 TEU of capacity per annum and is hanging its hopes on advice from MSC that this might be a temporary suspension, rather than an outright end.
NZCCO chair Mike Knowles told NZ’s Shipping Gazette that while it is currently the low season for export shipping, through to January next year, “once we go into high season [for reefer] this suspension would be concerning to us. New Zealand is competing in a global market for these ships – ships are extremely valuable currently due to the Red Sea crisis. I believe that MSC has effectively said ‘we can deploy these ships elsewhere and earn a better return off them’.”
While Mr Knowles found the advent of Wallaby, with its direct connection to North Asia rather than transhipment over Singapore “encouraging”, shippers sampled by DCN were not convinced by the selling points MSC was pushing: “For the life of me I can’t see any way this is an improvement for us, in any aspect,” was one comment.
Wider impacts
Despite all of the above, the air of uncertainty in the SEA trade is not all about MSC.
Maersk’s Southern Star re-entry to Melbourne is said to have further stoked disquiet in the AAX-S/GAC consortium (Maersk, ANL, Hapag-Lloyd, ONE).
Well-placed sources say a previous Melbourne “incursion” was in the guise of providing alternative coverage for changes in Maersk’s NZ coastal and Polaris (trans-Tasman) services, but the carrier was also chasing grape and citrus exports from Melbourne. “They were a bit late for that season but this time they’re after meat and dairy. It’s more blatant, and they’re taking advantage of the consortium’s inability to lock in a second Melbourne call. They’ve all lost a shedload of export market share out of Victoria and Tasmania because of the port rotation [with uncompetitive export transit ex Melbourne], which was never an issue for the (previous) contra-rotating two loop structure.”
The current structure has been in place since March 2023 and DCN understands has a two-year agreement lifespan, with a six-month notification period – which would mean any new arrangements would have to be flagged this October. We were told none of the partners are happy.
For the life of me I can’t see any way this is an improvement for us, in any aspect.
And with the New Year heralding the start of the new Gemini global co-operation between Maersk and Hapag-Lloyd, the scene would seem set for another re-organisation that could, for example, see ANL/CMA CGM draw closer to its Ocean Alliance partners COSCO SL and OOCL with an extension of the WA arrangements to encompass AAX, Triple A and ASAL.
It’s early days in terms of the medium-to-long term ramifications of the MSC changes, especially if the suspension of direct SEA coverage indeed proves temporary. But with the Swiss carrier abandoning the two services right on peak import season, who is sufficiently fleet-of-foot to fill the gap?
Over recent years a number of companies have either dabbled or been rumoured as showing interest in the trade, including TS Lines, HMM, Yang Ming, Evergreen and Singapore’s Vasi Shipping and X-press Feeders, even DP World-affiliated Unifeeder.
At the time of writing DCN could find no evidence of firm plans and, as one hopeful local put it on behalf of principals, “Where will we get the ships from? Who’s going to send them down here when they’re making millions elsewhere? And if space is tight the rates will go up and keep going up and the incumbents will be happy as Larry!”
“I can see no signs of competitive aggression in the market,” a freight forwarder said, “and why would there be? MSC has handed them business on a plate.”
Shifting cargo
Australia has long been the beneficiary of what was once a comparatively rare thing in the shipping world, post containerisation: scheduled multipurpose liner services, offering breakbulk, heavylift, project cargo – and, when required – container, options.
AAL Shipping, which began as Austral Asia Line as long ago as 1995 and launched in the trade between South East Asia and Australia with scheduled and ad hoc sailings, is busier than ever with its east coast and west coast services employing all four of the company’s 19,000 DWT S class ships and a rotating number, usually three, of the larger, 31,000 DWT A class. All have total lifting capacity of 700 tonnes.
Frank Mueller, AAL’s GM Oceania, has been observing interesting changes in sourcing patterns for the line’s core southbound cargoes (northbound liftings usually entail resource/commodities).
“Historically, SEA has been a strong player in industrial manufacturing, particularly the likes of Thailand, Malaysia and Vietnam. Over the years, a lot of that manufacturing moved to China due to lower costs.
“Now, we are seeing some of this go back into the SEA remit, as a result of increasing costs in North Asia, the diversification of supply chains as well as the risk of tariffs. There is regular steel coming out of the region, mainly Vietman, and we are also seeing more and more renewable energy components being exported. In that sector, there is strong demand for components such as wind turbine towers out of SEA. As Australia increases its focus on renewable energy projects, there could be room for increasing volumes on this trade lane,” Mr Mueller said.
After covid, AAL increased its coverage of key SEA markets by adding Thailand and Singapore to its long-standing Asia to West Coast Australia Liner service (AUWC). The service was also bolstered with the addition of a third vessel to the rotation. This additional tonnage not only increased cargo capacity for customers but has also enabled a 25-day frequency on the service – “ensuring that AAL customers continue to enjoy the most comprehensive and reliable scheduled breakbulk service from Asia into Western Australia”.
However, Mr Mueller said, the region still faces tough competition from China, where the inland and port infrastructure lends itself to being a manufacturing powerhouse.
“China has multiple, well-equipped and highly capable ports along its coastline that facilitate the regular movement of heavy and oversized cargoes. By comparison, ports in SEA require further deviation. We therefore have to assess each enquiry on its merit, to determine whether the volumes support the integration into our liner services to West Coast and East Coast Australia.
“One SEA maritime hub that is seemingly going from strength to strength is Singapore, where our global headquarters are based. This is a major transhipment port where we are seeing an increase in project cargo moving to Australia.
“Similarly, volumes from North Asia into Southeast Asia are also on the up. While the majority of cargoes out of North Asia are destined for Europe, Australia and North America, we are also handling a lot of intra-Asia trade. Here is where there are more practical opportunities to tap into the SEA manufacturing market – calling at South East Asia on route to Australia to collect back haul cargoes.
“The SEA-Australia trade lane is certainly developing again and is an area of attention for AAL. It is a region that we are keeping a close eye on and there is definitely more to come. The big question is whether SEA can further attract EPCs and investment to build up its manufacturing capability, while staying competitive when compared to China, South Korea and Japan in order to land the large projects.”
