How do Large Vessels Impact Container Supply Chains?

The impact of big vessels on global and regional container supply chains dominated discussion on the opening day of the 18th TOC Container Supply Chain Asia Conference and Exhibition, at the Marina Bay Sands Hotel, Singapore.

2014.04.11 - How do Large Vessels Impact Container Supply Chains

In a fascinating and thought-provoking keynote speech Mr Tan Chong Meng, Group Chief Executive Officer of PSA International, outlined the principal trends affecting container logistics on a global level. Bigger vessel sizes such as the giant container ships now coming into service, and the move to create more effective carrier alliances are driving massive investments in container terminal design, construction and technology.

He characterised this situation as ‘80-20’, a world in which 80% of cargo is concentrated in alliances, while 20% of vessels are mega-ships. However, this is not without its disadvantages, he added. “It is very much three steps forward and two steps back.”

In particular, container vessels that now routinely measure 400 metres in length lead to far more “berth wastage”, Mr Tan added. Handling two ULCVs simultaneously often meant at least 90 metres of a berth was unusable, whereas with smaller ships, three could have been handled on the same length of quay.

Currently, out of the 52 berths PSA operates in Singapore, 20 can handle ULCVs; a ratio of slightly less than 40% of its total quay length. By 2018, 35 out of the then 67 berths in use will be able to handle the mega-ships.

“But in terms of kilometres of quay, these 35 berths will take up two-thirds of the total, so it’s a much higher investment – our capacity investment is much higher over the next two decades,” he said.

A secondary problem, he added, was the effect of the cargo flows from the ultra-large vessels, especially when combined with cost reduction strategies such as slow-steaming and void sailings.

“We cannot say the liners are not doing the right thing by reducing these costs, but schedule reliability is getting worse and reached a new low of 64% of on-time arrivals in the fourth quarter of last year, and it doesn’t seem to be getting better, so how much worse will it get?” he asked.

This was compounded by the huge numbers of containers being loaded and unloaded in a single call, which led to far more complexity in yard operations and had a direct effect on landside flows in and out of box terminals.

“We have to find new ways of optimising the supply chain, the upsizing of vessels is only the beginning. The other parts of the supply chain have yet to catch up,” Mr Tan argued.

Also in the Opening Plenary Session Mr Mohammed Al Muallem, Senior Vice President & Managing Director, UAE Region, for DP World, updated delegates on Evolving Middle East-Asia Trade Dynamics. He stated that trade between Asia and the Middle East will likely experience a volume increase that will make it one of the fastest growing trade lanes in the world.

A growing population throughout the GCC countries, massive investments in industry and manufacturing and growing container exports from the region, particularly from the petrochemical industry, all point to increased demand on ports, shipping and logistics services. For well over a year now, he stated, DP World UAE region has been handling volumes of more than 1 million TEU every month and in 2013 handled a total of 13.6 million TEU, an annual growth of nearly 3%.

However, as with Mr Tan Mr Muallem noted that there were challenges to handling larger ships and maintaining schedule integrity for sailings. He suggested that this could be alleviated if some of the world’s mega-hubs, like Dubai and Singapore, worked more collaboratively. “We can’t just keep building more berths,” he said. “Another solution is for greater collaboration between mega-hub ports especially in terms of planning.”

Meanwhile, delegates were also given detailed analysis of the current state of the liner shipping markets. Analysts forecast no let-up in container overcapacity and the consequent freight rate war.

“There will be no peace for container shipping with (the current) massive build-up of new capacity,” commented Tan Hua Joo, executive consultant at Alphaliner. Tan added that the ratio of capacity growth to vessel demolition is at an unhealthy 3:1, and idle ship capacity is somewhere between 5-8% of current tonnage.

The ‘liner wars’ will continue under the new Alliance groupings, with no winners emerging, he stated, and expected these to last until 2016 if capacity build-up cannot be curbed this year.

Alan Murphy, chief operating officer and partner at SeaIntel Maritime Analysis, said that just to maintain the current – ‘over-tonnaged’ – market situation would require the scrapping of 25% of all vessels below 3.000 TEU. And despite global demand registering growth of 4-6% a year, this was still not enough to absorb the excess shipping tonnage.

Convened under the theme Asia’s Changing Role in the Global Trade Economy, TOC CSC Asia 2014 is taking place on 8 & 9 April as part of Singapore Maritime Week (SMW).

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