On the face of it, this should be a good time to be in the seafreight trade. The carbon footprint debate has only reinforced shipping’s status as the most cost-effective and environmentally-friendly way of moving the majority of products across vast distances, while the Icelandic ash cloud even left suppliers of traditionally airfreighted items such as flowers clamouring for alternative seaborne modes of transport.
Yet there are still considerable challenges facing both shipping companies and those that use their services, and the industry has had to navigate some extremely rough waters over the past 12 months.
Last year was a “disastrous” one for the trade, according to Dirk Hoffmann, European reefer business development manager for Maersk. Cargo volumes fell below 2008 levels, with a subsequent oversupply of vessels, and freight rates crashed to the point that shipping lines made significant losses. “The result of this was that shipping lines did not have the necessary capital to invest in equipment in 2009,” he says.
The knock-on effect has brought an unexpected crisis in the shape of a shortage of containers as demand rises again. “Equipment remains tight and will continue to be so in 2011,” Hoffmann predicts. “As lines try to return to profitability, the routes which return the highest yield will be prioritised to supply equipment. This may leave lower yielding supply areas without the equipment to carry their cargoes until freight could be increased to make these routes viable for shipping lines again.”
With forecasting poor in many countries, there will need to be better equipment planning to make sure containers are in the right place at the right time, he contends.
Steadily rising fuel prices have been another major issue at a time when the world is trying to escape from recession and encourage more trade. Changes in the fuel price are passed on to shippers through the Bunker Adjustment Factor (BAF). Looking at the BAF a year ago, the fuel cost for a vessel travelling from Costa Rica to the UK was $570 per 40ft reefer container, but fast forward to this month and the cost has hit $1190 on the same route. “Fuel costs have increased and this will have an impact on the seafreight of produce,” warns Hoffmann. “It is often the exporter or the importer who will absorb these costs as they will generally have longer term agreements with retailers and their local customers.”
Another shipper, Seatrade Reefer Chartering, admits that it has had little choice but to pass on increases in bunker fuel to customers. But that has only been one of the challenges to face the sector this year, according to general manager Yntze Buitenwerf, with the weather and global politics conspiring to make 2010 something of a headache so far. Weather problems in South America’s southern cone meant less fruit than usual was sent from Chile and Argentina, while an even bigger issue emerged when Russia outlawed the import of US chicken following a ban on the use of chlorine in poultry processing plants. That had a massive hit on profitability, according to Buitenwerf, with Seatrade effectively having as many as 30 ships out of commission during the ban. A severe shortage of fish from the Saudi Pacific and the Falklands only added to the misery.
“As a result of all this the push wasn’t there to create a high season,” he says. “Luckily we have a spread of businesses but if we had been totally exposed to the spot market we would have been looking at 35 per cent [losses].”
This shortage of product has only accelerated the decline of the reefer trade, says Richard Bright, managing director of Reefer Trends. “There’s been less fruit coming out of Chile, Argentina, New Zealand and South Africa and that’s meant less demand for reefer capacity,” he explains. The US-Russian poultry ban only compounded the problem.
But it’s not all bad news. Presidents Obama and Medvedev last week struck a deal to lift the ban on poultry imports into Russia, while good volumes from the South African navel season is bringing more optimism, according to Buitenwerf. That should help improve profitability, while it is hoped more containers will start to become available over the coming months.
The shipping industry is also tackling the climate agenda at a time when logistics are heavily under the world’s emissions microscope. The World Shipping Council has proposed a bunker fuel levy linked to shippers’ fuel efficiency, a move made in response to International Maritime Organisation efforts to promote the lowering of carbon emissions from shipping.
While this could see operators forced to step up their efforts to implement measures and technology to reduce emissions, the levy is seen in many quarters as preferable to any emissions trading scheme.
Individual operators are also taking matters into their own hands to improve their environmental credentials. Maersk, for instance, has introduced Aqualife containers to transport live lobsters from Canada to the Netherlands, and has also developed the protocols for transporting live cut flowers in reefer containers by sea. New software also allows reefers to maintain the ideal set temperature working on the same basis as a domestic freezer, which significantly reduces the carbon footprint of reefer containers, reveals Hoffmann.
One further development that could open up a lucrative new market is the trial of self-sustaining controlled atmosphere systems on lines from the Philippines to Europe. The technology promises significantly longer shelf life for bananas and could make shipping the fruit from Asia to the UK a realistic proposition.
REDUCING FOOD MILES
Perishable Movements is claiming an industry first with its new cross-docking facility, which opens at Felixstowe on 15 July.
The 10,000 sq ft, fully refrigerated facility is being touted as having the potential to massively reduce the environmental footprint of shipping in the fresh produce industry. Currently containers are being taken inland to be unloaded and are then brought back empty to the port, racking up the food miles in the process, but empty containers will be removed from the road under the new system. “We are trying to go with what the ultimate customer - the shopper - wants,” says managing director Michael Parr. “It’ll reduce costs and cut the carbon footprint.”
Perishable Movements has long term plans to open a similar facility at every container port in the country. “We hope to stop the inland haulage of containers,” adds Parr.
SHELLEY: SHIPPERS TAKING IT SLOW
Whether you believe it’s simply ‘’green wash’ or not, the increase in ‘extra-slow-steaming’ (ESS) is having a profound effect on the international freighting sector. And, for obvious reasons, this is especially true for the fresh produce industry.
Officially, ESS is the shipping industry’s response to cutting global carbon emissions and is supposed to cut vessel emissions by some 30 per cent. It’s now the norm on the majority of trade routes although the cynic would say that it’s simply a significant cost cutting exercise, keeps ships in employment and, in fact, was widely used just to redress the supply-demand imbalance that built up in 2009. It’s estimated that in May alone, speed cuts to between 17-19 knots from the usual 23-25 kept almost 100 ships in employment.
The UK Freight Transport Association (FTA) itself has just highlighted the issues of reliability and sustainability and said that with global activity levels and volumes rising, shipping lines must rethink those short-term, ‘credit crunch’ business strategies that have impacted on customer confidence.
The FTA indicated that the prevalence of slow-steaming has been badly managed and has had a detrimental impact for shippers as they foot the bill for delays, supply chain disruption, roll-overs, late notification and port of call issues. The FTA spokesperson said that they expected lines to take steps to conserve fuel and take out cost but with trade on the rise again, shippers have the right to expect better treatment and more joined-up supply chain solutions.
Of course, at the end of the day, the knock-on effect for importers and exporters is that ESS also adds a few days to transit times. For reefer (refrigerated) container shipping - which is crucial to the fresh produce industry - this is of even more importance when, for chilled rather than frozen goods, every extra day in transit is crucial. In addition, reefer containers are in shorter supply than their more traditional counterparts and are, obviously, more complex to operate: two points, both of which make reefer containerisation more expensive in the first place.
With regard to actual container charter rates, we have the usual uncertainty with some analysts predicting pricing remaining firm and others suggesting that a weaker euro, fears of a double-dip recession in Europe and the over-eagerness of carriers to boost revenue could put serious downward pressure on freight rates. However, it will take a while for the impact of a weaker euro to be felt and, because of the way cargo is booked, there is always a delay of about three months so cargo loaded this month and next is already contracted.
All of which means that reefer freight rates could remain unpredictable so, with this in mind, it’s even more crucial that you mitigate any possible negative fall-out by ensuring that your freighting partner offers you ‘real-time’ tracking and optimum freight management.
Rob Shelley is the ceo of Suffolk-based, Maritime Cargo Services.
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