The Hindu Business Line : Shipping lines: Buffeted by an ill wind

“It is really scary,” was the first reaction of a leading Custom House agent in Chennai on the current market condition. His concern was the slowdown in the US and its impact on Indian trade. The negative data coming from the US, which accounts for nearly 25 per cent of exports from Chennai, adds to his concern.

Six months ago, fuel prices were the main concern for the shipping industry. However, today it is about consumer spending in the US and the lack of business growth that will strain container volumes from Asia to the US, he adds.

Volumes at the major US retail container ports are projected to total 15.43 million twenty foot equivalent units (TEUs) for the year, compared with 16.5 million TEU in 2007. The estimate is down from 15.5 million projected in September, which would have been a 6 per cent decline from 2007. The total will be the lowest since 2005, when 15.4 million TEUs moved through the ports, according to data released by the National Retail Federation and Global Insight in the US

“This has clearly been a difficult year and we still have a challenging holiday season ahead of us,” the Vice-President for Supply Chain and Customs Policy, Mr Jonathan Gold, has said on the NRF Web site. “Retailers are being careful to import only as much merchandise as they think they can sell.”

The negative export trend to the US was visible in Chennai. Export to the US from the DP World Chennai container terminal between January and September this year dipped to 4.12 lakh TEUs, compared with 4.22 lakh TEUs during the corresponding period last year. There will likely be further drop during the last quarter of the calendar year, said a source.

“We cannot live in isolation. Anything that happens in the US affects us immediately,” he said.

Not isolated

According to the Trans-Pacific Stabilisation Agreement, a research and discussion forum of 15 major container shipping lines serving the trade from Asia to ports and inland points in the US, the US housing and credit crunch, that has hit both consumer spending and business growth, is likely to constrain container volumes from Asia to the US well into 2009.

But the TSA, along with many independent analysts, sees a turnaround beginning in the second half of 2009, and the lines say they remain focussed on addressing various fixed operating costs that have not been fully collected as part of the rates and surcharges, and that continue to rise.

Following a series of CEO-level meetings held in Geneva in late September, the TSA reported a ‘trade-wide’ 6.9 per cent year-to-date drop in Asia-US cargo volumes over January-June, compared to the same period a year earlier — from 3.30 million 40-foot containers to 3.07 million FEUs.

Through July, the year-to-date gap widened to 7.5 per cent. Historically, high oil prices, falling property values and tight credit led to slow back-to-school consumer spending and increased caution in the retail sector for the rest of the year. The TSA forecasts that full-year 2008 cargo demand could decline by as much as 8 per cent.

Falling volumes

Internal research by the TSA suggests that declining cargo volumes did not have as great an impact on TSA carriers, which experienced a 1.8 per cent decline in container liftings during the first half of 2008.

And even in July and August, when TSA carriers reported an overall 7 per cent drop in cargo volumes, vessel utilisation remained around 90 per cent across all trade segments, the TSA said.

A number of carriers have decided to trim their cost-bases by taking steps such as consolidating routes and sailings; entering vessel-sharing alliances; laying up ships for maintenance and repairs; returning chartered ships, and adding ships to service strings as part of slow-steaming strategies to conserve fuel.

An official of a shipping line said that with the US slowdown, people are now concentrating on Europe, South-East Asia and the Middle East. However, even these markets could see a slowdown over the next few quarters.

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