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Alliance deployments and new market entrants boost transpacific capacity

Fri 26 May 2017 by Rebecca Moore

Alliance deployments and new market entrants boost transpacific capacity
Noel Hacegaba (Port of Long Beach): We are feeling optimistic due to the new alliance structure, the new SM Line service and the change of ownership of the Pier T terminal.

The new alliance groupings as well as shipping lines operating individually on the trade could affect the precarious balance between supply and demand on the transpacific

The new alliances and a new shipping line entrant will have an impact on the transpacific trade this year – increasing capacity in an already delicate supply and demand situation. But the strengthening of the US economy bodes well for the trade, despite uncertainty about President Trump’s policies.

Last year, according to figures from Container Trades Statistics (CTS), Far East–North America volumes rose by 5 per cent compared to 2015, reaching 17.2 million teu. The CTS price index, which has a base rate of 100, fell to 84 points for 2016, a drop of 12.8 per cent compared to 2015.

For the other leg (North America to Far East) volumes rose by 7.3 per cent compared to 2015 to reach 7.8 million teu last year, while the price index of 70.5 was a 17.5 per cent reduction compared to 2015.

The new alliance structure is going to cause capacity to jump. UK shipping consultancy Drewry believes that the monthly slots available on the Asia–West Coast North America route are likely to increase by about 4 per cent on the headhaul and by 2 per cent on the backhaul when comparing April 2017 – which is when the alliances launched – with April 2016.

It points out that as well as the reorganised alliances, there will still be a number of independent and jointly run services that will work outside the three new groupings. Hyundai Merchant Marine Co (HMM) and Zim Integrated Shipping Services remain in the trade, but they are largely operating on their own. While an agreement has been signed between the 2M lines and HMM, this deal is a slot exchange.

Finally, newcomer SM Line Corp, born out of the demise of Hanjin Shipping Co, is expected to have one of the biggest impacts on the trade. It has launched its CPX China Pacific Express transpacific service with vessels of 6,200 teu. The new South Korean company is the fastest growing new carrier in container shipping history and is expected to disrupt the fragile market, according to industry information specialist Alphaliner (see box).

Indeed, the cocktail of the launch of SM Line and HMM’s reduced east–west presence could pose a risk to market recovery – while the new alliance structure is leading to “short term turmoil” in the markets, a senior analyst has said.

Neil Dekker, Drewry director of container research, said in a Drewry-hosted webinar about the outlook for the container market: “There are a few big changes. 2M is bringing in another player, HMM, and there is another player in the transpacific – SM Line. There is a little bit of fragility and risk to recovery, if more supply comes in and lines become more aggressive in order to hang on to market share. HMM is no longer a big player in the east–west trade. It is really only a slot charterer, so it has to prove it still has a presence. So there is the potential for some aggression on the commercial side.”

SM Line has been greeted enthusiastically by the second largest port in the USA, the Port of Long Beach, which will benefit from HMM’s association with the 2M alliance, too.

It expects its 2017 cargo volumes to leap as a result of the change of ownership of Hanjin’s Pier T terminal and after winning SM Line’s transpacific service.

Mediterranean Shipping Co (MSC) subsidiary Terminal Investment Ltd (TIL) bought out bankrupt Hanjin’s stake in the long-term lease to operate Pier T terminal at the port. As soon as it took over Hanjin’s share, it sold 20 per cent to 2M partner HMM.

Long Beach expects its container cargo volumes to jump by 7 per cent for the full year 2017 compared to last year on the back of the new Pier T terminal ownership, SM Line and the new alliance structure.

Long Beach chief commercial officer Noel Hacegaba told Container Shipping & Trade in an exclusive interview: “Because of this change the terminal is predominantly 2M, and we expect this to benefit the terminal.”

SM Line has started calling at Pier T.

TIL is now in the process of raising cranes to accommodate bigger ships. “When TIL assumed Hanjin’s ownership stake, we negotiated an agreement to raise two cranes to accommodate 20,000 teu ships. These will be ready by 2020,” Dr Hacegaba said. “Between the new alliance structure, the change in terminal ownership, and new services we are feeling optimistic about the calendar year 2017.”

Indeed, an encouraging sign of trade growth on the transpacific is that Long Beach is up just over 5 per cent for the calendar year to the end of April 2017, while the Port of Los Angeles reported 10 per cent growth for the first quarter of 2017 over the same quarter in 2016.
When it comes to the impact on transpacific ports of the new alliances, Drewry pointed out in its webinar that from a structural perspective there are positives and negatives. There may be fewer options for certain port pairs, but on the plus side there are new direct options for shippers. A direct call from the Ocean Alliance at Jakarta in the transpacific trade is one such example.

Against the backdrop of the mergers and consolidation taking place within the transpacific, the fact that the US economy is strengthening is a positive development. Despite uncertainty about how President Trump’s policies will affect trade, there appears to be stability within the US economy.

Inchcape Shipping Services general manager Dean Davison pointed out that overall, 2016 saw good solid growth of around 3-4 per cent for the east and west bound trades. Mr Davies said that 2017 is expected to see more of the same, with 4 per cent growth anticipated.

He commented: “The US economy looks as if it is maintaining stability since the Trump administration came to power and now, as it gets down to business, some of the initial concerns about a negative impact on trade have not occurred – or appear not to have occurred yet.” He warned that it was still early days but that as US consumer confidence “remains pretty good overall,” this will be reflected in transpacific demand.

“There is a little bit of fragility and risk to recovery, if more supply comes in and lines become more aggressive in order to hang on to market share.” Neil Dekker, Drewry director of container research

 

Enter SM Line – rising from Hanjin’s ashes

South Korea’s SM Line has an initial six services covering North East Asia–South East Asia, Far East–India and transpacific routes, with services launching in March and April 2017. Its total capacity was expected to have exceeded 40,000 teu by the end of April, making it the fastest growing new carrier in container shipping history, said Alphaliner.

According to Alphaliner, the company was incorporated on 15 December 2016 with a capital base of KRW37 billion (US$33 million). It will operate a fleet of 11 ships of 1,100-6,600 teu (six owned and five chartered units) with a total capacity of 41,381 teu. At least eight of these are intended for deployment on the carrier’s own services, including as replacements for chartered ships, while the remaining units are expected to be chartered out.

Five of these ships have come from Hanjin Shipping Co. SM Line’s parent company, Samra Midas Group, acquired the business operations of Hanjin’s Pacific and Asian routes. Many of SM Line’s personnel also come from Hanjin.

This will position SM Line as the 37th largest container carrier in the world, according to Alphaliner’s carrier rankings.

Alphaliner commented: “The company said it aims to gain a competitive advantage and attract customers through its competitive cost structure, while developing a niche market strategy that concentrates on its core trades.”

 

 

 

 

 

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