The Hindu Business Line : Problems by the box-full

Large-capacity vessels, soaring fuel costs and limited handling capacity at ports/terminals and poor hinterland connectivity in most parts of the world do not bode well for the rapidly-containerising shipping industry.

As the world shipping celebrates 50th anniversary of containerisation and, with it, the huge growth in the volume of container traffic in past half-a-century, experts draw attention to various problems facing container shipping today.

The first and immediate problem is the sharp rise in fuel costs which is putting an extra burden on ocean carriers.

According to one estimate, the fuel cost of a large container vessel on a round trip from Asia to Europe now accounts for nearly 50 per cent of the total voyage cost. Such a jump in costs was beyond expectations and therefore neither forecast nor factored in.

Another major problem is rise in vessel capacity. At a time when fuel costs are rising and the handling capacity in ports/marine terminals and hinterland connectivity in most parts of the world are not keeping pace with the growth in container volumes, the emergence of too many large capacity vessels does not bode well for the industry.

THE 50-YEAR RUN

The 50 years that have passed have been marked by several phases. The first phase was the gradual replacement of break-bulk vessels by container vessels, with cargo insurance premiums showing a downward trend. This was because containerisation provided improved protection of cargo from pilferage and from damage through bad handling.

The second phase was the reduction in transport costs, with the introduction of larger and faster ships.

The third phase saw the introduction of various types of containers, including reefer boxes, which made transportation of almost all kinds of cargoes possible, except perhaps heavy lift and bulk. The 1980s and the 1990s also witnessed intense competition and the beginning of the process of industry consolidation.

The fourth phase, which took place in 2000, saw the boom in container volumes and the shortage of vessels. The huge in growth in volumes was also combined with the shifting of manufacturing bases from the West to Asia, with China holding out the promise of emerging as the major builder of ships and manufacturer of marine equipment. Right now, South Korea, Japan and China together account for nearly 85 per cent of the world's ship-building activity.

LAND-SIDE INFRASTRUCTURE

And finally, now, what the world container shipping is experiencing is that the growth in container traffic has not been matched by a similar growth in ports and landside infrastructure in many countries. Unless corrective measures are taken, the gap, it is feared, will only widen in coming years, as more and more large capacity container ships will emerge on the scene.

In the early days, ships were built to carry 100 boxes whereas today the largest vessels in service can carry 9200 TEUs, and there are plans to build even bigger vessels capable of carrying 14,500 TEUs. More than half the container ships currently on order are of more than 8,000-TEU capacity each.

Just as countries will be required to build new airport terminals or renovate existing ones to handle the new giant of the skies — the Airbus A-380 — serious moves must also be initiated to upgrade seaports with wider berths, automated cargo handling system, state-of-the-art storage facilities and bigger cranes.

In 10 years, the world's ports would need to more than double their capacity if they are to play a central role in the global logistics system. But are the ports ready? Right now there are serious congestion problems in ports in various parts of the US, Europe and Asia.

FUEL COST WORRIES

High fuel costs raises a critical issue: Should world shipping continue go for larger capacity faster vessels if the oil prices persist at their highs? After all, the fuel costs of operating these large capacity fast running vessels will be substantial. A section in the shipping industry, therefore, is in favour of slower tonnage to save on fuel costs.

Some experts are of the view that excess ship deliveries may not be an immediate threat but the world container shipping will be vulnerable to "external shocks".

The companies investing in very high capacity vessels, upwards of 9,000 TEUs, may run into disaster in a recession. The economies of these vessels are based on operating to their full capacity and therefore may prove very expensive if operated even half full.

Fortunately, the global economy has so far proved resilient and supple despite signs of recession in certain pockets, high oil prices and additional security costs of transporting a container from one part of the world to another. How long this continues will be interesting to watch.

More Stories on : Supply Chain Management | On the move | Shipping

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