Daily Maersk – A product of slow steaming....

One of the major challenges facing by the container lines today is the mismatch between the supply and demand of fleet capacity. While cargo volumes have badly affected since 2009, capacity has continued to rise strongly as vessels ordered earlier continued to be delivered during the recession period . And many big vessels like Maersk’s Triple-E 18,000 teu vessels, currently under construction, are expected to enter the trade in 2013.   

 

Continuing growth in global container capacity coupled with sluggish volume , forced liners to lay up ships to manage capacity. Some liners skipped several individual sailings and suspended many services as a measure to manage over capacity .  
 

Another option the container liners introduced to mitigate the over capacity was the introduction of slow steaming. The speed of the ship is reduced considerably so that it will be necessary to deploy more number of vessels to meet the same demand or to maintain the same frequency.  As per Alphaliner, Paris based industry analyst, by December 2011 around 7 million teus had been absorbed, which otherwise would have been a surplus,  through this measure. It also helped the liners to make huge savings on the bunker cost when the international fuel cost was rocketing up. As per reports , the bunker cost (380 cst) was under USD100 in July 2009, which had gone up to USD750 by 2011 beginning !

 Daily Maersk Programme

 

 In 2011, Maersk Line launched Daily Maersk, providing customers with a ‘conveyor belt’ service between selected ports in Asia and Northern Europe.  Maersk Line ,  with largest vessels and  market share, introduced this service using the slow steaming technique. This new product was born out of necessity – to cope with the rising bunker cost and to soak up the extra capacity due to new vessel deliveries. The Maersk way of turning the negatives into positives !   

 

                                                       

A daily service between Asia and North Europe with reliable on-time delivery expects to set a new trend in liner shipping . Changing shipping from the weakest to the strongest link in the supply chain ! Until now, customers had to adjust their production schedules and supply chains according to shipping lines’ schedule, which was not so reliable. The engine behind Daily Maersk is 72 vessels operating a daily service between six ports in Asia (Ningbo, Shanghai, Yantian and Tanjung Pelepas, Laem Chabang, Jakarta) and three ports in Europe (Felixstowe, Rotterdam and Bremerhaven) - a giant ocean conveyor belt for the world’s busiest trade lane ! The much awaited 20 Tripple E vessels are expected to join this service from 2013 onwards- economy of scale , by all means ! As per the Line’s website they have transported over 2,00,000 containers with 98% reliability for the first year of operation.
 

 When you book a Daily Maersk service , Line will provide you with a promised transportation time which indicates the date that the container will be available for collection or onward transport at the location indicated in the Booking Confirmation. Regardless of which of the 6 Asian ports the cargo is loaded at, the transportation time – from cut-off to cargo availability – is fixed.

                                    

As per the programme the customer can enjoy a daily cut-off, which means that cargo can be shipped immediately after production without the need for storage. The main attraction of the programme is that the timely delivery promise is backed up with monetary compensation .  If cargo arrival is delayed by 1-3 days, Maersk will pay USD 100 per container to the customer. If delayed by four days or more, the pay back is USD 300 per container !
 

Maersk Line CEO, Mr. Eivind Kolding says “We set out to design a service that takes the stress out of our customers’ lives, to change shipping from the weakest to the strongest link in the supply chain. After all, shipping is only around two percent of our customers’ total cost. And yet our unreliability has until now forced them to shape their production plans and inventory around it,”

 Re Grouping of Carriers in response to Daily Maersk

To compete more successfully against the Daily Maersk programme  ,   Mediterranean Shipping Co (MSC) and CMA CGM  formed a partnership covering the Asia –Europe , Asia-Southern Africa and all South American Services. Both companies are known as strong independent liners, especially MSC, the second biggest line which grows organically and maintained its family ownership throughout the crisis period. With this unexpected announcement they literally stunned the observers !

 

                                    

Within a month’s time, The Grand Alliance ( NYK , OOCL, Hapag-Lloyd) and The New World Alliance(Hyundai, APL, MOL) formed the G-6 Alliance. Similarly Evergreen joined forces with the CKYH(COSCO, “K” Line, YML , Hanjin) Alliance.  

 

 

In short  within a few months of commencement of The Daily Maersk Programme , the Asia – Europe service landscape had changed, literally.

Container Scanning to enhance port security

 

The shipping industry world over  is striving to increase security for cargo containers without slowing the cargo traffic through the port . Prior 2001 Sept, the supply chain security concentration was mainly on theft, piracy and drug smuggling. But in recent times, the threat from terrorism is in supreme priority. The potential threat of terrorists using containers as a way to smuggle a nuclear  or radiological device inside a marine cargo container poses a large risk to the country .

 

In view of above , at the time of declaring cabotage relaxation for ICTT , Vallarpadam( Cochin) ,  the Defence Ministry of India confirmed that no relaxation on the security measures would be permitted and insisted  that all import containers passing through the terminal should be scanned.  Also , the recent seizure of  red sandal wood  from a container at ICTT re-enforce the demand of Customs authorities for 100% screening of containers passing through the terminal. This  was the second incident of sandal wood  , export of which is banned from India, being tried to smuggled out of the country using this terminal.

 

The challenges faced in achieving the goal of 100% screening of all inbound containers seem almost endless. However to confront this challenge, many technology applications are being pursued and deployed in many sea ports world over. The technologies used  presently to detect dangerous  / contraband cargo are not perfect or foolproof. But they are steadily improving in accuracy and reliability. Non-intrusive (gamma and x-ray) technology provide the image of the contents of containers without opening them.

Technologies  to Support Closed Container Inspections

 Radiation Detection Pagers – These are small gamma – ray radiation detectors that alert the proximity of radioactive materials. They can be installed at the terminal gate, quay and on all container handling equipments.

Radiation portal monitors (RPMs), consisting of large-area gamma-ray detectors  and neutron detectors allow the  detection of nuclear or other radioactive materials  in cargo containers or trucks entering or leaving a port. The high detection sensitivity of RPMs allows 100% scanning of cargo with minimal impact on throughput. However, false positive alarms resulting from cargo which is naturally radioactive (e.g., certain ceramic tiles , porcelain toilet bowls etc) can slow-down the cargo flow.

 

Container scanners

Container Scanning means the non-invasive inspection of contents inside a container . Physical inspection of all containers entering a port is not feasible and hence modern scanning equipments are used world over for fast and efficient inspection of  containers passing through a port.  Scanning equipments indeed  have enhanced security by enabling the detection of weapons at ports of entry, thereby preventing their transport onto the mainland . Commonly used scanning technologies are
 

X-ray Inspection system - This technology is the most common form of non-invasive inspection technology in use today.  X-rays detect difference in material densities inorder to produce an image of the vehicle or contents inside a container.  The X-ray image thus produced is analyzed using the sophisticated software to detect the contraband (illegal traffic). However , if the cargo and contraband are of similar densities, detection is very difficult. Also , image of contraband could be hidden in the shadow of very dense cargo. Multiple x-ray beams could to a certain extent erase the shadow effect.

 

The process of scanning starts when the vehicle driver gate in the truck at the scanning station with the cargo manifest, which would be the base for checking discrepancies. The vehicle is then taken through the scanning area and the image is captured and analyzed. If anomaly noticed, container will be directed for through checking orelse the container will proceed the onward journey. The whole process is expected to take about 10 – 15 minutes per container.  

 

Gamma-ray Inspection system – gamma ray imaging technology provides clear radiographic images (much like x-ray images) of containers, showing the outlines and density of the contents. The principle of operation  is similar to that of a  x-ray scan system, except the usage of  gamma-rays. The system directly use gamma rays or pulsed fast neutrons to generate gamma rays to produce image of the container and the contents.

                                 Gamma-ray image of a truck taken with Mobile VACIS system

There are fixed, semi-fixed and  mobile gamma ray systems are available . Mobile system , which is designed around a standard vehicular platform that can be easily serviced and repaired, is well suited to the port environment. The Mobile unit  can be driven to an inspection point within a port, and set up and operational in less than 10 minutes.   It can operate in both the scanning mode in which the truck/container is stationary or in the stationary mode where the truck or container is driven past the Mobile gamma-ray beam.

Gamma-ray image of a truck with 2 stowaways in a container

Gamma ray system is said to be more fast and economic compared to the X-ray system.
 

Technology alone is not enough

Usage of modern technology is merely one part of the strategy for homeland security system. It indeed has benefited security officers and customs inspectors for detecting contrabands in the cargo traffic. However , for an efficient   total security system of the supply chain ,  other factor  such as  the cooperation between the Customs and defence / security / CISF wings and programs like CTPAT (Customs- Trade Partnership Against Terrorism) that encourages shippers and carriers to implement security measures to promote greater security at all points is also necessary .

FCLs & LCLs

FCL - Full Container Load , doesn’t mean that the container is indeed FULL, it may be partially filled also.  It means that the shipper is responsible for stuffing / sealing the container. The shipper is responsible for the proper stuffing as well as the contents inside the container. FCL supposed to reach the consignee as it left the shipper’s premises.  The line is not responsible for the condition of the cargo unless the seal has been tampered with or the container is damaged while it is in their custody.

FCL/FCL – The shipper is responsible for stuffing at the load port and consignee is responsible for de-stuffing at the discharge port.

LCL – Less than Container Load is same the conventional cargo and the liability is same as for break-bulk cargo. The line ( or forwarder / NVOC) is responsible for stuffing and de-stuffing of the container (LCL/LCL) . Generally the cargo gets consolidated and stuffing/de-stuffing happens at CFS  on both ends.

LCL/FCL – The line (forwader/NVOC) consolidate cargo from various shippers and organise stuffing at the load port. The full container would be delivering to a single consignee at the POD.

FCL/LCL – This happens when one shipper wishes to supply more than one consignee at the discharge port. In this case shipper is responsible for stuffing.

How do containers hold together on-deck ?

 

The containers on-deck is secured to each other by means of TWIST LOCKS and lashing rods. The twist lock is designed for very close tolerance and very rough use and is consists of two sets of rectangular projections, one at the top and other at the bottom. 

How it work?

 

Four twist locks are inserted to the four corner castings (small rectangular holes) of a container and the next container will be placed on top in such a manner that the corner castings of the second container fit into the upper rectangular part of the twist lock. After that , the lock is twisted or turned by 90 degrees. In this position the width of the rectangular projection is more than the width of the hole and hence cannot be removed.

 

Iacocca – An Autobiography by Lee Iacocca with William Novak is one of my favourites !  I’m sure that this record breaking bestseller by the author of TALKING STRAIGHT, will be enjoyed by all his readers. A must read for all management students and those who are headed for a business career....  

Lee Iacocca , the son of Italian immigrants , is  an American legend.  He  is a straight – shooting , fast talking , blunt, practical  business man - the man who made his mark by giving results ! His name is the symbol of integrity, ‘guts’ and know-how. He is one of the great success stories of the decade. A genuine hero...a leader.

Beginning his career at Ford as a trainee,  he rose spectacularly through the ranks of Ford Motor Company and became its president. Iacocca successfully developed many automobiles at Ford, including the Ford Mustang. After 32 years of his employment with Ford , 8 years as President of Ford , he was fired ! Ford was his first and only employer till that date, he had never worked anywhere else. The power play which toppled him would have shattered him, but he didn’t get mad , he got even.

Iacocca was not without a job long , Ford’s loss was Chrysler’s gain . Iacocca ,as the chairman of Chrysler Corporation, was instrumental for the miraculous rebirth of Chrysler from near  bankruptcy to the most envied of the Big Three automakers of America.

His book , IACOCCA – An Autobiography , is a profile of a strong-minded corporate chief. Many people admire him for his marketing savvy and management expertise. This book is his success story, about his breath taking career. Iacocca reads like he talks – plain and straight. This book gives lots of management tips on industrial policy, labour costs, auto safety etc.

In the "Opening Word"  Mr Iacocca explains why he has written this book , Not to become famous , (he was  already famous than he ever wanted to be), Not to get rich , Not to get back at Henry Ford for firing him ( he did it in the marketplace by fighting it out in the old fashioned way) But to set the record straight, to tell the story of his life at Ford and at Chrysler the way it really happend !
 
Its vintage Iacocca....!

 

The Ship

Why Ships ??

More than two thirds of the Earth’s surface is covered by water and naturally water transportation is the oldest mode of transportation.  Ever since man designed crafts to float on seas, goods have been carried between ports worldwide. The demand for ships is derived from the demand for the goods they carry.

Ships have been used for trade for thousands of years, but the present shipping business is the result of technology developments and practice established over the last 150 years. The invention of ‘iron’ and steam engine did wonders to shipping trade and caused eventual demise of wooden sailing ships. However, today the ships are powered primarily by diesel engines.

The ship

The ship is obviously the Fundamental tool for all commercially related shipping activities. There are two main parts to a ship – The Hull & the Machinery. Hull is the actual shell of the ship  including the superstructure where as machinery includes not only the engine required to drive it  but also the  generators required for lighting, refrigeration and other auxiliary loads.

Bows , Stern , Amidships, Beam

The front portion of the ship is called the fore end and the extreme forward end is called the bows. The vessel is said to be moving ahead when bows move first.

The rear portion / back end of the ship is termed the after end or stern. When moving stern first, the vessel is said to be astern.

The area between forward and aft portions of the vessel is called amidships. The maximum breadth of the vessel in amidships is called the beam.

The bridge of the vessel is the navigating centre. On modern ships the navigating bridge, machinery and crew accommodations are situated aft.

Bow & side thrusters, stabilizers

Modern vessels have transverse propulsion units in the bows known as bow thrusters. Many vessels have side thrusters fitted at the stern. Their purpose is to provide greater manoeuvrability in confined waters like ports and to reduce or eliminate usage of tugs.

Stabilizers are something similar to the fins of a ship, fitted in pairs deep below the water line. Their purpose is to reduce rolling of the vessel in heavy seas.

Types of Ships

Cargo ships are designed for carrying particular commodity or group of commodities. The type of vessel deployed on a trade route is determined basically by the traffic carried.

The Bulk Carrier

Dry bulkers are the simplest ship in terms of construction and it generally carries homogenous cargoes in bulk like coal , iron ore, grains etc. Depending upon the size of the vessel they can be termed as

1. The Panamax  (50,000 – 79,999 dwt)- The largest size of ships that can be passed through the Panama Canal .
2. The Capesize  (80,000-170,000 dwt) – too large for the Suez or Panama Canal .
3. The Handymax (35,000 – 49,999 dwt) – Popular for smaller shipments of bulk cargo – ideal for smaller ports with limited facility

4. The Handysize (20,000 – 34,999 dwt) – Ideal for ports of limited drafts and berth length. Suitable for grain Shipments .

 Tankers

These are vessels which carries liquid bulks. Oil tankers are used to transport crude oil from the oil fields to refineries and petroleum and fuel oil from refineries to distribution centres and bunkering ports. Hence tankers have a worldwide network routes.

Depending the size there are a range of oil tankers 

1. ULCC (Ultra Large Crude Carrier 3-500000 dwt)
2. VLCC  (Very Large Crude Carrier 1.5 to 299999 dwt)
3. Suezmax (1.2 to 1.5 lakh dwt, could  transit Suez canal)
4. Aframax (80,000 to 119999 dwt – used in clean product (aviation, motor spirit) trading
5. Panamax (50,000 to 80,000 dwt , presumed to transit thru’ Panama Canal)

Container Ships

These are becoming increasingly predominant in many trade routes and they can carry a wide range of cargo in containers.  Container ships are ‘cellular’, which means that the vessel holds are fitted with vertical metal guides called ”cell guides” into which containers can slide and thus they are secured from any movement. Though below deck the containers are secured by cell guides, on hatch covers they must be lashed in order to prevent movement.

Ro-Ro Vessel

These vessels are designed for any type of vehicles. Ro-Ros have been designed with ramps in convenient position (stern,bows,side). Ro-Ro ships designed for carriage of new cars are called  Pure Car Carriers. The vessels designed to carry cars and trucks are called PCTS – Pure Care & Truck Carriers. Ro-Ros commonly have their capacity    measured in LANE METRS .  This measure gives an indication of     total length available for vehicles of     given width.

Combi Carrier

Combi carriers are unitized type of cargo carriers , combining Container and vehicular shipments, including   ro-ro . It has a versatile cargo mixture , can carry odd shaped cargo along with unitised cargo. These ships are suitable for a wide range of ports and hence in operation worldwide. A number of Combi carriers are introduced now

-To improve the ship turn-round time

- to improve the versatility of sea transport

- To minimize the operating cost

 General Cargo Ships

They are also called conventional vessels used for the carriage of diverse form of dry cargo. These vessels are almost disappeared due to Containerization . Most of the conventional vessels are Tween Deckers , ie, Ships with 2 or more decks . (“Tween” derives from “Between” , ie, decks between the uppermost deck and the ship’s bottom). This facility adds to the variety of cargo the vessel can carry.

Gas Carriers

The movement of gas, both Natural and Petroleum, is now a major trade in shipping industry. Both type of gases are carried in liquid form and of course both products need purpose built ships.

LPG carriers normally have cylindrical tanks made of aluminum alloys and are self supporting and free standing.LPG (Butane & Propane) can be kept in liquid form under high pressure at a low temperature. Modern LPG carriers are fitted with refrigeration equipment in order to maintain the temperature of the cargo. This helps to liquefy the vaporization during voyage or at discharge point.  

LNG has to be carried under very low temperature (-104 deg cen to – 163 deg cent) and at atmospheric pressure. The vessel has insulated spherical tanks protruding high above the ship’s deck to carry cargo. They are made of aluminium alloy , surrounded by insulation and protected by a steel outer shell. Tanks are connected to vessel’s hull but not a part of it.

Refrigerated (Reefer) Ships

Refrigerated ships or reefer ships are designed  to carry fresh produce. Development of reefer ships helped to trade meat resource of Australia & New Zealand. Reefer ships are also designed to carry non-refrigerated cargo too as reefer trade generally is seasonal and one way. These types of vessels are in decline due to development of reefer container trade.

Heavy Lift Ships

This is an emerging trade and is  used for the transportation of  indivisible loads . This is a risk market and generally is spot market  in nature with a reasonable return. Long term contract of such ships are found in oil contractors, fabricators and conversion yards.

How shipping industry adjust over supply to decline in demand?

During 2002-’04 the demand in container trade grew faster than the supply and hence the shipping companies placed new orders. The deliveries of new orders generally take 2-3 years to materialise and from 2006 onwards the industry has been experiencing faster supply growth compared to demand. This over supply resulted in considerable drop in freight rates , especially during 2008 - 2009.

Shipping industry has been hit particularly hard by the reduction in merchandise trade in 2009 resulted by the world economic crisis. Inspite of the downturn in demand, shipping capacity increased as vessels ordered earlier continued to be delivered during the recession period. As far as container trade is concerned, the fleet size is expected to grow further during the next 4 to 5 years, that too , most of the new vessels to be delivered are of 8,000TEU or more capacity.

How do industry adjust this over supply > demand decline crisis ? It has 5 ways to adjust its supply to a declining demand, though most of them are effective only in long run.

1. Stop ordering new tonnage – Compared to the year 2007 (538) and 2008 (213), 2009 saw only 9 new orders for container ships. For tankers new orders in 2009 stood at 153 (against 1,054 in 2007)  and 290 for dry bulks(against 2,060 in2007).

2. Terminate or postpone existing orders – Almost all shipping companies restructured, to the possible  extent, the order book in 2009. Many deliveries were postponed, cancellations were few.

3. Slow-Steaming – means that the speed of the ship is reduced so that it will be necessary to deploy more number of vessels to meet the same demand or to maintain the same frequency. This measure helps to maintain freight rates without laying off vessels and also saves bunker expenses considerably.

4. Temporarily withdrawing existing tonnage from the service – This indeed is another good measure to keep up the demand in a particular trade and to keep the freight rates from further slipping. During 2009-10, around 500 container vessels ( around 12% of the global container carrying capacity) idled at anchorages across the globe.

5. Demolish older vessels – Ship owners sell their older vessels as scrap metals. As the prices of scrap is very low, many ship owners preferred to hold on to their vessel than scrapping. However 2009 witnessed a surge in ship recycling / demolishing, China leading the market (34.5%) , followed by India (30.7%) and Bangladesh (24.8%).

Though drastic capacity reduction deployed on main trade routes, interestingly the fleet reduction was less drastic on major South-South routes, as trade among developing countries were comparatively less affected by the recession. This shows the positive role the developing countries are playing in the global economy recovery.