SHIPPING | Asia holds the key to global reefer trade

Colum Murphy |  LLOYD’S LIST

ON a recent visit to Asia, US Federal Maritime Commission chairman Richard Lidinsky recounted a story about a farmer in the US Midwest who lost a valuable contract with a customer in China because the would-be exporter could not secure a reefer container to ship meat to Asia.

For Mr Lidinsky, this was evidence of irresponsible behaviour by foreign shipping lines that ought to take more seriously their role in protecting US citizens’ interests by promoting US exports.

Now, the chairman is determined to crack down on shipping companies by reviewing the service contracts between them and shippers, and drawing up a list of prohibited activities to prevent container lines from rolling cargo, imposing “surprise” surcharges and pursuing other practices the FMC considers abusive.

Mr Lidinsky could be missing the mark, though. The farmer in Iowa may have every right to be angry, but recent developments in the global reefer market suggest it is too simplistic to blame such incidents entirely on irresponsible shipping lines.

The shortage of reefer boxes continues to pose a significant problem, but other changes are afoot that could alter the way reefer trade is conducted.

For one, there is the emergence of new pockets of demand. Here, the out-and-out leader has been the phenomenal growth in intra-Asia reefer trade.

Second, supply-side developments, such as the ongoing modal shift from specialised reefer shipping to container shipping is also influencing the global reefer trade.

Third, how demand and supply side considerations are reconciled is evolving. Diversified container lines have more options available to them than specialised reefer lines, and as such they will need scrutinise more carefully the investment proposition reefers offer.

The bottom line is that if the margins are not there, the lines could become more aggressive in cutting services and reallocating resources to other, more profitable corridors or to transporting goods that offer better margins.

According to research company Seabury, in 2000 the world’s market for containerised reefer cargo for perishable food stood at 2.4m teu. By 2008, that had more than doubled to 5.2m teu.

But the financial crisis took its toll, and in 2009, the market declined 2.6% year on year to 5m teu.

Industry sources say 2010 will see a rebound. Maersk Line has said it expects the reefer container market to increase by 10% in 2010. One Asia-based global liner forecasts 2011 figures will be as much as 6.6% higher, representing a return to the strong pre-crisis growth rates.

Even through the recession, however, one market continued to show strong growth. In 2009, intra-Asia growth in reefer trade grew by 7.1% to 952,603 teu from 889,618 teu a year earlier. This was in contrast to dry container cargoes in intra-Asia trade, which declined by 2.7% to 24.7m teu in 2009 from 26.4m teu the previous year.

According to Rick Kimura, vice-president of global reefer management at Mitsui OSK Lines based in Hong Kong, fruit, vegetables and processed food shipments from southern China’s Guangdong and Fujian Provinces as well as cargo of seafood and poultry from Thailand and Vietnam witnessed “steep growth” between 2008 and 2009.

A key driver of such growth is the emergence of a growing middle class in Asia, who increasingly want to improve the range and quality of their fruit and vegetable consumption.

In parallel, China has also managed to improve the quality of its produce remarkably over the past few years, and a free trade agreement between China and the members of the Association of Southeast Asian Nations, signed in January this year, can only spur further intra-Asia trade.

This growth will not be without its consequences. “The impact of whatever happens in Asia will be seen on the global level, and that will also be seen in reefers,” says Rupesh Jain, chief commercial officer of MCC Transport, the dedicated intra-Asia arm of Maersk Line.

That effect has already been seen, as evidenced by the Midwest farmer’s inability to secure space.

But Thue Barfod of Maersk Line Hong Kong adds: “The global changes in the reefer market will have an impact on the intra-Asia reefer market rather than the other way round, since by far the south to north trades generally are where the large changes are taking place from a breakbulk perspective.

“The consequence of higher equipment demand in those trades will lead to higher utilisation of equipment, which again will have an impact on intra-Asia in terms of equipment availability and very likely lead to higher rate levels, both for conventional and containerised shipment within the region.”

A report by Drewry Shipping consultants puts the world’s reefer container fleet at 1.69m teu in 2009. Industry sources estimate the incremental growth for this year to be 70,000 teu, giving a current overall fleet of 1.76m teu, or a 4% increase from last year.

This contrasts with an estimated 6.6% growth in cargo demand in 2010 compared with last year.

For container lines, this would suggest an opportunity, especially given the greater proportion of reefer containers to specialised reefers. In 2008, according to Sextant Consultancy, the proportion of perishable reefer cargoes carried in specialised reefer ships in 2008 was 43.6%. That is expected to fall significantly to 28.9% by 2015.

Underlying this is the scrapping of the breakbulk reefer fleet, which is continuing apace. In 2008, 41 vessels were scrapped and in 2009 that number was 38. Maersk Line says it expects scrapping in 2010 to return to 2008 levels. Meanwhile, newbuilding orders total just 10.

Maersk Line’s Mr Barfod says that if vessel type is examined, there is a trend towards scrapping larger reefer vessels (above 300,000 cu ft). In many cases, these tend to be vessels that are used for the transportation of fruit and vegetables. In 2008, 27 such vessels were scrapped; last year, that figure was 33.

Whether shipping companies will invest more in reefers will depend on the economic attractiveness of the opportunity.

In terms of box prices alone, the cost of a 40 ft dry box stands at around $4,500. In contrast, the cost for an integral reefer 40 ft box is about $19,000.

Add in other considerations, such as the running cost difference in terms of maintenance and repair, fuel consumption, the greater possibility of claims from customers as well as the significant technical support required for reefers, and it becomes obvious that the reefer container business model is one of high cost.

Some argue that it is an expensive proposition, and one that is not always justified in terms of profitability. One industry source says that a margin of 8%-12% is a good guideline as to where profit levels should be, although in many cases — including, for now, intra-Asia — such levels remain elusive.

Making the economic trade-off between profitable types of cargoes and between different trade corridors will continue to be a challenge. Resolving it may result in more shippers and their customers feeling neglected.

Intra-Asia trade volumes

Country of origin 2008 2009 Year-on-year difference
teu teu teu %
Burma 27,225 32,694 5,469 20.1%
Cambodia 191 222 31 16.2%
China East 47,895 50,759 2,864 6.0%
China North 199,393 194,189 -5,204 -2.6%
China South 177,491 210,454 32,963 18.6%
Hong Kong 141 60 -81 -57.4%
Indonesia 42,243 42,007 -236 -0.6%
Japan 28,233 26,784 -1,449 -5.1%
North Korea 2,047 993 -1,054 -51.5%
South Korea 29,261 29,476 215 0.7%
Laos 3,886 4,971 1,085 27.9%
Malaysia 78,399 72,296 -6,103 -7.8%
Mongolia 7 8 1 14.3%
Philippines 39,003 40,793 1,790 4.6%
Singapore 1,426 1,574 148 10.4%
Taiwan 20,237 20,738 501 2.5%
Thailand 121,675 147,600 25,925 21.3%
Vietnam 70,857 76,985 6,128 8.6%
Reefer total 889,610 952,603 62,993 7.1%
Dry total 26,376,896 24,678,027 -1,698,869 -6.4%
All commodities 27,266,506 25,630,630 -1,635,876 -6.0%
Source: Seabury

Major reefer box fleets (2009)

Carrier Reefer (teu)
1 Maersk 390,000
2 MSC 106,000
3 CMA CGM 95,000
4 Hamburg Süd 84,500
5 APL 75,000
6 CSAV 74,600
7 Hapag-Lloyd 66,000
8 OOCL 47,000
9 China Shipping 43,000
10 MOL 42,000
11 NYK 41,800
12 COSCO 36,000
13 Hanjin 34,050
14 K Line 30,900
15 Evergreen 25,800
Source: Dynaliners and carriers

2 Comments

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2 responses to “SHIPPING | Asia holds the key to global reefer trade

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