Shipping mergers are not good news for customers, says Seatrade

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Shipping mergers are not good news for customers, says Seatrade

Although mergers between large shipping lines may be necessary for future economic sustainability, the head of Dutch-Belgian company The Seatrade Group believes they often result in negative consequences for the customers. Seatrade_Falcon_Bay_2

Seatrade CEO Yntze Buitenwerf, who will speak at the Produce Marketing Association (PMA) Fruittrade Latin America event from Nov. 12-13 about trends in shipping options and innovations, said such fusions essentially meant exporters had less choice while the average transit time would increase.

Earlier this year, German container shipper Hapag-Lloyd AG and Chile's CSAV agreed to a merger that would create the world's fourth-largest shipping company in terms of capacity.

Denmark's A.P. Moller-Maersk and Switzerland's Mediterranean Shipping Co. (MSC) are also seeking an alliance, after a three-way tie-up with France-based CMA CGM was rejected by the Chinese authorities.

"All around the world now you see shipping lines getting together, for obvious reasons actually, to have a sustainable business model and to become a little bit more profitable," Buitenwerf told www.freshfruitportal.com.

"But it ultimately means that these shipping lines' transit times are going to deteriorate because the ships will get larger and larger."

He said the issue of larger ships slowing transit times was also being exacerbated by slow steaming - a shipping practice whereby cargo vessels travel at far lower than maximum speed to save on fuel costs.

"Now with these mergers that is not going to improve," Buitenwerf said.

"Before the customer may have had the choice between two different companies, one leaving on the Monday and one leaving on the Wednesday, but after they merge that doesn't make a difference any more. Whatever channel you choose to book, you're getting on the same line."

The Seatrade head explained that it was important to remember most container lines were driven by dry cargo rather than perishables, and so fast transit times may not be their top priority.

"I wouldn't necessarily say perishable cargo is a byproduct for them; it's part of their overall business model. Depending on the line it can be 10%, 20% of the business," Buitenwerf said.

"But the real driver is still the dry cargo, not the reefer business. So they can't really adjust their schedules to the needs of what is in our opinion very important for a perishable produce industry."

Lower costs, not lower prices

While shipping companies say the mergers are necessary to create economies of scale and lower overall costs, Buitenwerf said these savings would not be passed on to the customer.

"If you look at the profitability of many of these lines, it is below zero, so they need to do something to get the profitability up," he explained.

"Shipping investors these days are all extremely frustrated about their returns, so the first thing the lines have to accomplish is to improve the returns for the investors again, and eventually to find capital again for the future.

"It might eventually give some benefit to the customer in terms of cost, but the point is if you just look to the shipping cost itself, that's irrelevant."

Buitenwerf explained that as Seatrade was a company specialized in moving perishable products, it was far more focused on the overall supply chain.

"For example, we move our cargo out of New Zealand into the European market in 27 days, whereas the fastest container line does it today in 48 days; that's a difference of around 20 days," he said.

"Although you can't just translate that time-saving in quality, that is an important part because you will have less waste in your supply chain, and waste worldwide in the perishable industry is very close to 40% - it's huge."

Canals on the horizon

Partly in response to the significantly larger vessels sailing the seas today, the Panama Canal is currently undergoing a major expansion, and rival projects are being planning in Guatemala and Nicaragua.

Buitenwerf said while there was undoubtedly a continuous need for greater shipping capacity from the Pacific to the Atlantic Oceans, the probable Nicaragua Canal transit time of 1.5 days - partly due to many locks being needed in the mountainous landscape - meant it would not be very suitable for perishable products.

Although the Panama Canal transit time is considerably less at around eight hours, the expansion may not be enough to meet future shipping volumes.

"The new locks in the Panama canal will already be 100% utilized by the time they open," Buitenwerf said.

"Part of the reason for that is the Americans have started to dig for shale gas and they will use a big part of the new lock system in the new Panama Canal from the opening."

PMA Fruittrade getting everyone together

Speaking about the upcoming PMA Fruittrade Latin America that will be held in Santiago, Buitenwerf said it would be a great opportunity for Seatrade to consolidate relationships it has made over recent decades in the South American country.

"We have been active in Chile for close to 30 years now, so for us it's more like we can see our business friends there," he said.

"It is important to get all the industry players together. 20 years ago they started in Chile with smaller food gatherings, and now it's got to this, but these events need to have an attractive program where all the people find each other."

Seatrade will also be promoting its recent order of four shipping vessels that will form an integrated part of the FDD (Fast, Direct & Dedicated) concept it has developed in recent years.

"They are 100% dedicated to reefers, so that's also something we want to bring forward in the program there. It's part of a new building program, so they will be used in South America, but there are purposely built for th FDD service."

Delivery of the new ships is expected for 2016.

Photo: Wikimedia Creative Commons

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