Global change brings local adjustments

09 February 1996

The major restructuring of global shipping company alliances coming into full effect in the first few months of this year will have an impact on Gulf operations. Most likely to change are the container shipping services that link the Gulf with Europe and the Far East as many leading deepsea container shipping companies amend their sailing schedules. However, shipping industry managers are confident the changes will be absorbed smoothly, and that the high standard of container services in and out of the Gulf and Red Sea markets will be maintained.

'Restructuring obviously leads to potential insecurity and instability in the trades concerned,' says David Charlesworth, the Red Sea, Gulf and southern Asia general manager for UK-based operator P&O Containers.

'However, no one appears to be throwing massive amounts of extra tonnage on to the berths, so I don't see any cataclysmic changes coming up. Most shipping lines are doing pretty much what they were doing but with different partners.' A containership operator in the Far East/Gulf container shipping trade takes a similar view. According to Johnny Kuo, executive vice-president of Taiwan-based carrier Uniglory, the mega carriers and their global alliances will only have an impact in the Gulf 'in due course,' while dedicated services will continue to carry the 'vast majority' of cargo into the region.

Such confidence that current industry upheaval will not affect business in the Gulf and Red Sea sectors is apparent from fresh moves to try and push up rates. For example, 13 lines in the Far East/Gulf trade covered by the so-called Talking Agreement are currently discussing possible increases of around $100 for a 20-foot container and $200 for a 40-foot unit. Typical rates for movements from the Far East into the Gulf at present are about $1,400 for a 20-foot container and $2,800 for a 40-foot box.

Lines belonging to the Europe Middle East Rate Agreement (EMERA) were due to discuss similar moves as part of their 1996 business plan, although the group prefers to refer to 'rate restorations' rather than rate rises.

Last October the EMERA lines implemented a $50 a 20-foot-equivalent-unit (TEU) increase in basic freight rates to main Gulf ports. At the same time they introduced a $150 a TEU rise in the rate for onward transportation within the region. These rises followed similar increases in October 1994 and the beginning of 1995.

Transport additionals The EMERA lines are expected to focus on what they term 'transport additionals,' the rates for moving containers beyond the main Gulf hub ports such as Port Rashid and Jebel Ali in Dubai, and Mina Khalid and Khor Fakkan in Shaijah.

'The next change in rates will probably take the form of another restoration on the basic freight rate and the transport additional,' says a member of the EMERA secretariat in Rotterdam. Final details of new rate levels and the date of implementation have still to be finalised.

P&O's Charlesworth thinks any changes are most likely to come into effect in April.

'The actual levels of rate restoration have been discussed by the conference but will be reviewed nearer the time depending on the state of the market,' he says.

In a predictable reaction, the leading customers of the shipping lines serving the Gulf are already arguing that the current market is not strong enough to bear any further rate increases.

'Whatever the lines say, the fact is there is not an enormous amount of freight around at the moment,' says Philip Stephenson, the joint managing director of UK-based freight forwarder Davies Turner. 'Against that sort of background, it will be difficult for the EMERA lines to have a successful rate restoration exercise.' Davis Turner works with Gulf Agency Company (GAC) to run the well-established CargoGulf groupage services.

EMERA's recent concentration on the 'transport additional' aspect of Gulf container shipping rates arises from growing concern among lines at the cost of inland road haulage and regional shipping feeder operations. Many lines feel they are failing to recover the full cost of such operations. Consequently, changes introduced in 1994 brought in a three zone tariff structure which divided the region into lower, middle and upper Gulf regions.

At the same time, the lines decided to increase their rates in stages in order to minimise protests from shippers. However, EMERA's campaign to restore rates is being pursued in the face of relatively static demand. While the lines have had 'some success' in maintaining earlier rate increases, 'much depends on the economic situation in Saudi Arabia and Kuwait,' according to an EMERA spokesman. 'We also have to bear in mind the available capacity on the route, which in turn could be affected by the situation on the Europe/Far East sector.'

This refers to the general upheaval on the global container shipping scene, as operators in the Europe/Far East trade break up established partnerships and form new alliances.

Liner shipping company executives do not expect the revised sailing schedule changes to be disruptive, but several will readily admit that the sweeping changes have limited the time they have devoted to Middle East matters of late.

Few major names in shipping were unaffected by the changes that took effect in January. Major groupings now working together, either globally or in specific trades, include Hapag-Lloyd, Neptune Orient Lines and NYK; American President Lines, Malaysian International Shipping Corporation, Mitsui OSK, Nedlloyd and OOCL;

DSR-Senator, Cho Yang and Hanjin; and KLine and Yang Ming.

Further moves Further significant changes are due to take effect in May. In particular, the current alliance between P&O Containers and Danish company Maersk will come to an end. P&O will then link up with the Hapag-Lloyd/NOI./NYK group while Maersk develops a new partnership with US-based Sea-Land.

P&O is currently involved in a number of Gulf trades, including Northern Europe, the Far East, Australia/New Zealand and the US.

Jebel Ali is the main Gulf hub port for most of those trades, although the Australia/New Zealand service uses Port Rashid. At the moment, P&O/Maersk provide a weekly service between Northern Europe and the Gulf.

From Jebel Ali, P&O uses a mix of some of its other deepsea vessels servicing the Gulf and third party feeder operators to move cargo around the Gulf.

'When we move to the new group in May, those arrangements will basically stay the same. Some details of the feeders may change a bit,' says Charlesworth. Details of changes to P&O's Far/East-Gulf and US services have still to be announced but the arrangements for the Australia/New ZealandGulf trade, where P&O works with Blue Star and NYK, will remain the same.

When its alliance with P&O comes to an end Maersk will link up with Sea-Land, which has already started taking slots on Maersk sailings between Europe and the Far East. For the Middle East, Maersk and SeaLand plan to employ seven vessels - four and three resepectively- to operate weekly services linking northern Europe and the Mediterranean with Jeddah, Jebel Ali, Dammam and the Indian sub-continent.

Marseilles-based Compagnie Maritime d'Affretement (CMA) has signed a six-month slot charter agreement with German-based carrier DSR-Senator Lines which is due to he reviewed in late June. The outcome of the review could influence CMA's choice of a Gulf hub port. Last year, CMA left Fujairah in favour of Khor Fakkan in a move that was presumed to be temporary while Fujairah installed new gantry cranes.

In January a CMA spokesman in Marseilles said such a move would depend on the future of the slot charter agreement with DSR-Senator Lines. This deal gives the German operator capacity on CMA's nine 3,400-TEU vessels on the Europe/Far East route, which are due to be augmented by a new 4,000-TEU vessel in 1997. In exchange, CMA has space on DSR-Senator's Europe/Far East trade ships.

CMA has also revamped its Middle East feeder network, and now operates two vessels. One serves the lower Gulf and Mina Qaboos in Muscat, while the other goes to middle and upper Gulf ports such as Bahrain and Dammam. The ships are operated by a subsidiary.

UASC upgrades Another stalwart of the Middle East liner shipping industry, Gulf-based United Arab Shipping Company (UASC), continues to operate a fleet of 13 ships to link Europe, the Gulf and the Far East. Dedicated feeder services link the upper and lower Gulf regions. Longer-distance feeder operations to and from the Indian subcontinent are handled by a third party carrier, Bombay-based Shreyas Shipping.

UASC uses 2,000-TEU ships for its Europe/Middle East and Middle East/Far East trades, which are about half the size of some of the vessels other operators are introducing on the Europe/Far East run. To upgrade its fleet, UASC has placed a $660 million order with a group of Japanese shipyards for 10 3,800-TEU container ships for delivery from 1998 (Regional Focus, MEED 2:2:96).

In the Far East/Gulf trade, Uniglory is in the process of reducing the round-trip time for its weekly container service from 49 days to 42. The transit time savings are to be achieved by dropping direct calls in Japan and Korea. Cargo from those countries will instead be feedered on other Uniglory services through the company's new terminal at Taichung in Taiwan. Uniglory's ports of call in the Gulf are Dubai, Abu Dhabi, Dammam and Bahrain. Cargo for Kuwait is transhipped at Abu Dhabi and carried by common feeder, while Uniglory's local agent there provides a barge feeder connection to Bandar Abbas in Iran.

Looking ahead to overall prospects for business in Gulf liner shipping trades during 1996, most observers see little excuse for excitement. P&O's Charlesworth says that in 1995 the Europe/Gulf trade did not live up to expectations. 'I think that as far as the Europe/Gulf trade is concerned, 1996 will probably see a modest improvement in traffic over 1995 - we are certainly not expecting a decrease,' he adds.

CMA suggests that demand for space on Gulf shipping routes is likely to remain fairly static during 1996. One of the main reasons advanced for this is the continuing lack of major construction projects in the region. A more positive development is the small but growing traffic from the Middle to the Far East, mainly in the form of raw polypropylene, which can make use of the unused capacity available on the sector.

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