FIERCE competition among shipping lines is once again forcing down container rates in the major Gulf trades with Europe and the Far East. In public, most of the lines involved will say only that they have been unable to continue the rate restoration efforts of the last couple of years and, as a result, rates are still around the levels that prevailed in 1995.
Privately, some operators will admit that typical rates for container movements in European and Far Eastern trades with the Gulf have actually declined, despite a general increase in cargo volumes this year. In the case of Europe, they say, rates have fallen by more than $100 a 20-foot equivalent unit (TEU).
‘It appears that the current fierce competition between shipping lines in the Europe/Far East container shipping trade has spilled over into the Gulf market,’ says a spokesman for one leading Middle Eastbased shipping line. In fact, he claims that some boxes are being shipped between Europe and the Far East at rates that are now lower than for movements between Europe and the Gulf, despite the huge difference in journey times.
‘One result is that more shipping service operators have decided to expand their Europe/Far East operations to include the Gulf and Middle East generally in the hope of boosting their revenues,’ he adds. Confirmation of that trend comes from one of the leading ocean freight forwarders operating in the Europe/Middle East market.
‘Rates are definitely softening at the moment,’ says Don Clark, senior regional manager Middle East with UK-based LEP International. ‘This may be a temporary situation, but at the moment I would say competition between shipping lines in the Europe/Gulf market is as fierce as I have ever witnessed.’
LEP is particularly well-placed to assess such developments as its seafreight business in the sector is currently growing by 30 per cent a year. This year, the company is looking to handle 6,000 containers from the UK, Continental Europe and the US into the Gulf and the Red Sea port of Jeddah.
Despite the sliding rates, new liner shipping capacity is appearing in the secondary Gulf trades with the Indian sub-continent and southern Africa which are on the increase leading to an even greater competition for Gulf cargo.
UK-based shipping company Andrew Weir Shipping (AWS) recently launched a new service linking Africa, the Middle East and the Indian sub-continent. The multipurpose service, called Bank Ellerman, started in June and now provides monthly sailings from South Africa (Durban), Tanzania (Dar-esSalaam) and Kenya (Mombasa) to Dubai, Pakistan (Karachi) and India (Bombay). The two ships being used to maintain the service cater for containers, both 20 foot and 40 foot, and breakbulk cargoes. The vessels also have vegetable oil tanks and heavy lift capacity of up to 80 tonnes.
Supporting evidence for the continuing growth in Gulf/Indian sub-continent trade, in particular, comes from the Bombay-based Transworld Group which has expanded both its routes and tonnage in those trades this year. The company, whose activities include Dubai-based feeder vessel operator Orient Express Lines (OEL) and Indian sister company Shreyas Shipping, is expecting to boost its container carryings in the Gulf and Indian sub-continent markets by more than 20 per cent this year to more than 190,000 TEUs.
The group has good reason to make such bullish projections as it experienced a 25 per cent increase in comparable container carryings during 1995, to nearly 156,000 TEUs, and a 17 percent increase in 1994 when the total was just on 122,000 TEUs.
Yet many of the latest developments in Gulf liner shipping activities result from the restructuring of global shipping alliance operations which came into full effect in June. The changes have seen UK-based shipping company P&O Containers formally join the so-called Grand Alliance of NYK (Nippon Yusen Kaisha), NOL (Neptune Orient Lines) and Hapag-Lloyd.
They now jointly provide a four-loop container service between Europe and the Far East which includes weekly eastbound calls at Jebel Ali in Dubai. Other key Gulf region ports. notably Dammam. Kuwait, Abu Dhabi, Doha, Bahrain and Muscat, are served by feeder operations in and out of Dubai. The service also includes calls at Jeddah on the Red Sea coast of Saudi Arabia twiceweekly eastbound and weekly westbound.
Through the Grand Alliance partnership, Japanese carrier NYK becomes one of several recent newcomers to the Europe/Middle East trade. The company makes no secret of its intention to try and become a significant player in this market. ‘We have a comprehensive and established network of agents throughout the Middle East region whose professional representation will strengthen NYK’s presence in this growing market,’ says a spokeswoman for NYK Line (Europe).
Initially, leading deepsea liner shipping companies publicly proclammed that they did not expect the recent upheaval in their industry to adversely affect Gulf activities. At the start of this year, some were even talking about new moves to push up rates. Lines in the Far East/Gulf trade, for instance, talked about trying for increases of $100 for a 20foot container and $200 for a 40-foot unit.
Typical rates for movements from the Far East into the Gulf during the first few months of this year before they began to fall were about $1,400 for a 20-foot container and $2,800 for a 40-foot box.
Similarly, lines belonging to the Europe Middle East Rate Agreement (EMERA) were hatching plans for further rate restoration moves, to take effect in April. This would have complemented the increases that came into effect last October. Then, basic freight rates to main Gulf ports went up by $50 a TEU and there was a $150 a TEU increase in the rate for onward transportation within the region.
The EMERA lines were particularly keen, as they have been for many years, to push up further the rates for moving containers beyond the main Gulf hub ports in Dubai, Sharjah and Khor Fakkan. That reflected their concern over the cost of inland road haulage and regional shipping feeder operations. However, shipping industry sources now concede the lines have found it hard to make those last increases hold, let alone push up rates any further.
The longer-term impact on rates of the restructured shipping line alliances is also uncertain. Even the short-term impact is hard to read as the alliances came into effect at the start of the traditional mid-summer lull in cargo volumes. ‘It is still too early to really judge the effects of the new service arrangements as far as the Gulf is concerned. We are still in a bit of a honeymoon period,’ says a spokesman for P&O Containers. ‘The next few months should see things start to settle down. So far, though, there have not been any discussions about putting rates up or down.’
Quite whether any discussions about pushing rates up would actually achieve anything positive for the lines appears highly doubtful. Even lines belonging to EMERA concede that the current market picture is mixed at best. ‘ volumes for the first half of 1996 increased by 6.5 percent overthe same period in 1995,’ according to a spokesman at the London -based EMERA secretariat. ‘This positive growth has encouraged several new liner operators on to this trade lane and this has led to a fall in average revenue levels.
Nevertheless, the EMERA lines continue to talk about possible rate rises over the next few months. ‘It is expected that rates will improve over the final quarter of the year in line with increased demand for space at that time,’ says the EMERA spokesman. There is a marked difference between such public statements and what the lines and their customers say privately, however. Sources on both sides of the industry say that the shipping lines would find it very hard to make increases stick unless there is a strong upturn in cargo volumes over the coming months, which is not expected.
Shipping lines which are heavily committed to the Gulf market fear that the recent alliance restructuring could cause continuing instability. Lines based in the region such as United Arab Shipping Company (UASC) have to contend with the expanded presence of carriers such as NYK, NOL and Hanjin Shipping.
‘Generally. the newcomers are not yet winning particularly large volumes of Middle East cargo, simply because they are relatively new to the trade. But their presence is creating some instability,’ says the spokesman for one shipping line with a big stake in the region.
He also points out that Falling container rates however appealing they are for shippers and importers in the short-term could produce adverse effects in the longer-term Low returns, reluctant investors ‘If the shipping lines continue to get a low return on their capital investment in ships and so on, they may be more reluctant to invest further in the future,’ he says. ‘At the same time, shippers should be aware that many of the newcomers to the Gulf container shipping market only service the region as part of a broader global operation if they can get better returns elsewhere they could reduce their commitment to the Middle East.’
That last thought might be wishful thinking as new capacity is planned by some of the leading operators in the Europe/Middle East/Far East container trades. French shipping company Compagnie Maritime d’Affretement (CMA) announced plans earlier this year to put four new 4,000-TEU containerships into service between Europe and the Far East by early 1998. The new 24-knot vessels will be deployed on CMA’s weekly French Asia Line (FAL) service which links Northem Europe, the Middle East and the Far East. They will replace four 3,250-3,424 TEU Star-class containerships.
P&O Containers also recently confirmed an order for two new 6,674-TEU vessels which will the world’s largest of this type. Due to be delivered in early 1998 they are likely to be deployed in the Grand Alliance container shipping operation between Europe and the Far East, according to P&O.
These developments will be a particular worry to lines such as UASC which already face subdued container shipping rates in the main Gulf deepsea trades. Yet UASC has 10 new 3,800 TEU container ships on order for delivery from 1998 onwards and is acquiring the capabilities of a truly global operator. UASC focuses on servicing its home market, but also offers regular container services to and from Europe, the Far East, the US and South America, plus an extensive feeder network within the Gulf and Indian sub-continent region. Indian traffic, for example, is generally feedered via Khor Fakkan. The company also operates conventional/bulk services to and from both Europe and the Far East.
In the increasingly competitive markets of the region such diversity is likely to be the key to survival and future success.