ICTT, Vallarpadam increased draft to 14.5m !

Free Ports / Free Trade Zones(FTZ) / Special Economic Zones(SEZ)

A Free Port ( or Free Trade Zone or  Special Economic Zones ) is a port, a port area or other area with relaxed jurisdiction with respect to the country of location. Many international air/sea ports have free ports, though they tend to be called customs areas, customs zones, or international zones.  Earlier in history, some free ports like Hong Kong enjoyed political autonomy. 

 

 

The modern free port is an area of a port separated from the customs area of a nation by a stockade. Ship may enter such a port , discharge, load and depart without custom formalities. The goods may be stored, repacked, manufactured  and re-exported without customs formalities. Only when the goods pass the barriers to reach the consuming public of the country do they undergo customs inspection and pay the necessary duty. A free port is a “customs out land “ within the political boundary of a country.

 

In short Free port is a fenced, patrolled area, not necessarily include the entire port. It is “Free” and “foreign territory” in respect to application of customs formalities within its boundaries.  It accepts legally admissible merchandise and the accompanying transportation media from all nations with the minimum of customs procedures

 A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's national laws. "Nationwide" laws may be suspended inside a special economic zone. The SEZ includes free trade zones (FTZ), export processing Zones (EPZ), free Zones (FZ), industrial parks or industrial estates (IE), free ports, free economic zones, and urban enterprise zones.

 

Though, India experimented with the concept of Export Processing Zones (EPZ) from 1965 onwards , it did not work out as expected. Special Economic Zones are a new feature of Indian economic policy which provide tax-free enclaves for investors from India and abroad. According to the Prime Minister of India, Dr. Manmohan Singh,  “SEZs are here to stay”.

 

World’s first known SEZ seems to have been an industrial park set up in Puerto Rico in 1947 to attract investment from the US mainland. Many other countries,  like  China, Iran, Jordan, Poland, Kazakhstan, the Philippines, Russia etc,  have been established SEZs successfully.

 

The main goal of setting up SEZs is to providing an internationally competitive and hassle-free environment for EXIM trade. All the import/export operations of the SEZ units are on a self-certification basis, no routine customs examinations is required. Besides providing state-of-the-art infrastructure and access to a large, well-trained and skilled workforce, the SEZ policy also provides enterprises and developers with a favourable and attractive range of incentives.

Looking beyond TAMP.....

Tariff Authority for Major Ports, India - A Critical  Review

Introduction:

Ports are considered of strategic importance to the economic and spatial development of a country. Ports have a prominent place in international trade as they provide linkages between international and domestic production and distribution networks. About 95% of the India’s foreign trade by volume and 70% by value is transported through sea.

 

In India, in the past, the development and provision of infrastructure in the port sector was largely in the hands of the government.   The liberalisation programme of the 1990s, opened up the sector to private players , thus shaping the nature of competition that is prevailing today .

The Indian port sector is clearly in a phase of transition. The Central Government recently announced a series of measures to promote foreign investment in the port sector. Meanwhile, new port sector law proposals are also under discussion. One of such proposals is the draft Major Ports Regulatory Authority Act, 2008 (MPRAA, 2009) . This Act expected to create a new Regulatory Authority for Major Ports which can be considered a successor of the Tariff Authority for the Major Ports (TAMP). Another recent proposal is the draft Indian Ports (Consolidated) Act, 2010 which is currently being discussed in the port sector.The third major document under discussion in respect to PPP projects with respect to Major Ports is the Model Concession Agreement (MCA).

For a better understanding of today’s discussion – Looking Beyond TAMP,  a short overview is given of the current structure of the Indian port sector.

A glimpse of Indian port sector

India has 13 Major Ports and approximately 185 Non- Major Ports   located in nine Maritime States and UT. With regard to the performance aspect, currently, Major Ports handle about 60% of the total cargo traffic, while Non-Major Ports account for 40% of the traffic. As per the below table it is evident that the share of the Non-Major Ports is steadily increasing over the years.

 

All ports (Major and Non Major Ports) are regulated under the Indian Ports Act, 1908 and it defines the jurisdiction of Central and State Governments over all ports in the country.

Under the Major Port Trusts Act, 1963, aMajor port is governed by a Board of Trustees nominated and controlled by the Central Government .The Trustees have to follow the policy decisions of the Central Government while their financial powers are limited. Port dues and port and terminal services’ rates are externally fixed by TAMP. There is a ceiling for capital expenditures; amounts above such ceiling have to be approved by the Central Government.

However, the jurisdiction of the Non-Major Ports are under the maritime states’ Government  (Orissa, Andhra Pradesh, Tamil Nadu, Pondicherry, Kerala, Karnataka, Goa, Maharashtra, Gujarat as well as Lakshadweep Islands and Andaman and Nicobar Islands).

TAMP as a port regulator

The introduction of private sector terminal operators in the ports during the 1990s brought about the possibility of a direct confrontation between the public Port Trusts and the private operators. In view of this the private sector representatives demanded a neutral organisation to regulate and control tariffs. As the Government was afraid of the emergence of private monopolies, the Major Ports Trust Act, 1963 was amended by Port Laws (Amendment) Act 1997 to constitute the TAMP.  The basic objective of TAMP was, and still is, regulation of fair competition.

The Tariff Authority for Major Ports (TAMP) was constituted in April 1997 to provide for an independent Authority to regulate all tariffs, both vessel related and cargo related, and rates for lease of properties in respect of Major Port Trusts and the private operators located therein. The Authority comprises a Chairperson and two Members appointed by the Central Government. Presently, the Head Quarters of the Authority is in Mumbai.

Tariff regulation is effected by TAMP according to the following principles:

- Safeguarding the various port users’ interests
- Ensuring fair and just returns to port operators
- Considering factors which encourage competition and operating efficiencies
- Deploy established costing methodologies
- Regard policy objectives of the Government
- Leverage tariffs to improve operational efficiencies
- Ensure a fair and transparent tariff fixation.

 TAMP has jurisdiction only over major port trusts and private terminals therein.  This Authority is empowered not only to notify the rates but also the conditionalities governing application of the rates.  Every notification, declaration, order and regulation of the Authority made under the MPT Act is published in the Gazette of India.

The orders notified by the Authority are final. There is no provision for appeal against these orders within the system. Aggrieved parties will have to approach the High Court for Redressal. This Authority, however, undertakes review of orders, under exceptional circumstances. The Union Government has the power to modify the Authority's Order or issue 'policy directions' on matters relating to port pricing.

The way TAMP operates is changing. With respect to tariff increases of existing terminals, a cost-plus approach was applied as per 2005 guidelines. New guidelines (2008) comprise a tariff cap which is set upfront tariff fixation for all new PPP projects based on capital cost, operating cost & optimum terminal capacity, prior to inviting bids.

International Regulatory Practices

Maritime countries use a range of regulatory instruments (including specific stipulations in concession agreements) to govern the award of concessions and/or leases . The main aim of economic regulation in the port sector is to control anti-competitive behaviour of port authorities and terminal operators resulting from imperfect market conditions. However, the focus of a port regulator may differ from country to country. Regulation may focus on tariffs, subsidies, access to facilities, investment levels, bidding requirements, performance targets and so on, depending on the objectives of the regulator.

In the international port industry,tariff fixing is a typical task of a Port Authority, respectively a terminal operator.From a business economics point of view the revenue share is a cost for the terminal operator and is usually included in its tariffs. If that is not allowed, then the costs have to be compensated by profit, which is only possible if such profit is not too restricted. 

Most concession agreements in the international port sector determine royalties on the basis of a fixed amount per unit (TEU/tonne, etc) for a minimum guaranteed throughput (fixed royalty) and a gliding downward scale of unit prices for qualities above this level (variable royalty). The tariffs are revised annually on the basis of the applicable consumer index or the US$ inflation, if applicable. Moreover, the operator gets a possessory title on the terminal area in the form of a lease agreement. The lease rent generally depends on the investments of concerned parties.

An overview of Europe port policies

With respect to the port sector there are similarities in India and Europe - there are large ports with different institutional and legal structures, located in different countries/states, competing for the same markets.

The European Commission never succeeded in regulating the legal form of Port Authorities of the Member States. Within the Community there exists a wide diversity of port management structures. The most common model in the EU is the landlord port model, which is the preferred model by the European Commission.The most important element of the European ports policy is power under the European Treaty to ensure fair competition between ports.

A recent EU publication is the EU Commission Staff working document (Communication on European Ports Policy – Full impact assessment), of 18 October 2007 which outlines actions to formulate an EU Ports policy with the below objectives

 (a) to ensure that there is sufficient port capacity available to handle the growth in EU trade

(b) to promote greater freedom of access for port services providers
(c) to promote more flexible employment patterns and social dialogue
(d) to promote fair competition within and between ports
(e) to achieve a better balance between environmental protection and economic growth objectives.

Major findings of the EU Commission

- There is a vast mosaic of port management models across Europe. Under EU procurement rules there are several factors that have an impact on whether a Port Authority or a port service provider is regarded as a public service provider acting in the general public interest or a commercial entity governed by the rules of the market place. The Commission concludes (wisely!) that it has no role in to play ‘by establishing a unique port management model’.

- The wide variety of approaches to port and terminal financing resulting from the different port management models demonstrate the need to create a level playing field for cross-border competition. Guidelines on State Aid to ports and more transparency of port accounts are needed.

- A level playing field among Port Authorities is needed with respect to access to port land and port services.

- Port & terminal construction projects must comply with national and European environmental legislation. There is a need for enhancing environmental management in ports.

- Port labour requirements have been changed as a result from automatisation and containerisation. A higher level of skills and more flexible employment patterns are required, in particular with respect to health and safety, training, freedom to select port workers and negotiate conditions of employment.

 The Commission has continued during recent years its drive towards further regulating inter and intra port competition.

( SourceRegulation of the Indian Port Sector, Mr Christiaan Van Krimpen , report for World Bank, May 2011).

Looking Beyond TAMP

 

India as an emerging world power should not wait too long to modernize its port sector in accordance with international best practices and the requirements of its increasingly modernizing and expanding economy.

Port reform and related changes in the regulatory framework is a long and difficult process.

Prices can ‘make’ or ‘break’ a port

The pricing strategy of a port is dependent on the way the port is financed and, ultimately, on the ownership status of the port. A port or a terminal operator set tariff / prices in order to achieve certain objectives (strategic pricing) such as profit maximization, throughput maximization, generation of employment and economic activity, regional development, minimization of ship time in port and the promotion of trade. High prices would normally reduce demand for port services, on the other hand, low port prices may bring clientele to the port but  investment costs may not be recovered in the long-run. The right tariff can lead a port to prosperity and growth and Tariff setting should be done by the concerned Port Authorities, terminal operators and marine services providers, respectively.

TAMP   and It’s Ambiguities

A terminal can attract traffic of a nearby (competitor) port by offering customized services or by offering price discounts. In the Indian port sector prices tend to be fairly rigid. TAMP fixes the ceilings therefore major ports cannot offer customized and value added services. The minor ports are free to offer differential services to consumers as their prices are not governed by TAMP. But they fear that if their prices are higher than the major ports, they will lose their traffic to the major ports. In all, there is little scope for competition between ports through provision of customized services. Offering too much price discounts to port users considering huge labour cost involved is impractical.

 

Revision of port tariff is a lengthy process.On receipt of a tariff proposal, it is registered as a ‘tariff case’. Once a proposal is registered as a tariff case, consultation process is initiated to promote participation of all the relevant stake holders. The proposal received from a Major Port or a Private Terminal Operator is forwarded to the concerned port user associations/major user organizations for comments. These comments are then sent to the proposer Port Trust or a Private Terminal operator as feedback information. The proposal is also internally scrutinized and necessary clarifications/additional information are obtained from the proposer. As part of the consultative process, joint hearings are organized either at the Office of the Authority or at the Port level. On behalf of the Authority, the Chairman generally presides over the hearings. Based on the totality of information collected, the Authority in its meeting decides on the proposal. The Orders passed in the meeting are notified in the Official Gazette of the Government of India. A copy of the notified Order is sent to the concerned port for implementation and to all other parties to the proceedings for information.

TAMP 2005 Guidelines – Clauses which Require a Review

Ø  Sec 2.4.1 : Cost plus approach of tariff   fixation

Ø  Sec 2.8.1 :Post July 2003 bidding, revenue share not considered as admissible cost for tariff fixation but all bidders prior to July 2003 can take revenue share as an admissible cost  for tariff computation

 Ø  Sec 3.1.8 : Tariff fixation for 3 years

Ø  Sec 3.2 : Consultative approach of tariff fixation

 

TAMP 2008 Guidelines – Clauses which Require a Review

Ø  Sec 1.3.2 : Continuance  of 2005 guidelines

Ø  Normative method of tariff fixation: Most appropriate method is followed  but other operators who have entered into a MCA prior to this guideline are severely cramped

Debatable questions:

-          Should a publicly owned and financed port be allowed to compete on price, for the same customer, with a privately owned port that has to charge higher prices in an effort to recover its investments?

-          What if these ports are in the same, economically interdependent, geographic area?  

-          Do ports need to recover infrastructure costs through pricing? And what happens if some do and others don’t while all have to compete for the same hinterland?

-           Is there such a thing as ‘efficient port pricing’ and is there scope for policy intervention to ensure a level playing field?

-          Should there be a newly formed independent sector regulator for the ports which replaces TAMP?

-          Should TAMP be transformed from a Tariff Regulator to a Competition Regulator on the basis of a new Port Competition Act applicable to all commercial ports in the country?

( Cynosure 2013 , Indian Maritime University, Dept.of Maritime Management, Cochin Campus)

First container landed in India, at Cochin on 23rd Nov 1973

MV President Tylor at Cochin on 23rd Nov'73 with the first container to be landed in India.

It is to be noted that world's one of the finest transhipment ports, Singapore, also started container handling at the same time.It is pity that, even after 40 years,  Cochin could not mark a place in the international maritime map, inspite of having geographical advantages.

What is Re-Stow Movements ???

Container stowage is the process of accommodating (placing) a container on a ship in the allotted slot or cell. Re-stow is the process of temporarily removing a container from the allotted slot/cell and replacing it. Generally re-stow arise when a vessel has multiple ports of call and the containers have not been stowed in sequence with the ports of call. Some containers, therefore has to be removed from the ship for operational ease , to discharge containers from the lower hold or load containers to the lower holds,  and then re-stowed for discharging at the appropriate port of call .
 

There are 2 kinds of re-stows  (1) Ship – to – Ship (or Bay to Bay) or (2)Ship – Quay – Ship . In the first kind the container will be moved from one bay of the ship to another bay temporarily and re-stowed back once the lower hold operations are completed. Whereas in the second case, the container gets discharged from the vessel and placed at the quay or the designated place in the yard and re-stow it once the required operations (moves) are completed. However, the container does not leave the terminal /port at which it is temporarily unloaded.  
 

For re-stows charges are applicable, port / terminal has specific tariff fixed for re-stows per unit (20’, 40’) basis.

New developments at ICTT, Vallarpadam - Cabotage Relaxation Notification

 

Cochin Port Trust have released 2 important notifications for ICTT Vallarpadam on 21st Dec 2012. The first one is the much awaited notification on relaxation in cabotage policy for transhipment for Exim containers to and from ICTT, Vallarpadam. Though the Ministry of Shipping was relaxed the Cabotage policy exclusively for ICTT in Sept/Oct 2012, official notification was not released.

  

 The second important notification issued by CoPT is on increasing the declared basin / Quay draft of ICTT from 13m to 13.5m in the entire quay length of 600m. Also the authorities expect to gradually increase the draft up to 14.5 mtrs by Jan /Feb 2013.

  

Hinterland Connectivity

 Another major bottle neck ICTT has been facing is the check post issues at Walayar , which connect the hinterlands to ICTT/ Cochin Port. Though Joint efforts of DP World and Kerala Chamber of Commerce and Industry smoothened up the working conditions at the check post, the trade has been requesting for commencement of the Gopalapuram check post as an alternate back up option for a long time. Finally on 30th Nov 2012, the commissioner , Commercial taxes issued a notification permitting movement of customs sealed export container through Gopalpuram Check post. This is expected to facilitate smooth /fast movement of containers from hinterlands to ICTT.

 

Management of over capacity - New challenge for liner trade

 

Maritime transport is the backbone of international trade and a key engine driving globalization. Around 80% of global trade by volume and 70% by value is carried by sea. International seaborne trade grow and fall in tandem with the developments in world economy and global merchandize trade. As per the latest UNCTAD report, in 2011 the world fleet tonnage grew at about 10% against the 4% growth rate of global seaborne trade, as the ship owners continued to take delivery of the vessels ordered prior to the economic crisis.

 

In line with above trend , container trade also decelerated to 7.1% in 2011, down from 12.8% in 2010, whereas the tonnage grew at 7.7% to make up 12.9% of the world tonnage ( Source: UNCTAD’s Maritime Review Report 2012). As the supply , ie, the vessel capacity, outstripping the demand, ie, the shipped volume, the freight rate fell to unprofitable levels for most Liners in 2011 and the beginning of 2012.

 

 

As a consequence of the continued oversupply of tonnage in 2012,  the fleet capacity and freight rates fluctuated so violently that even the high profit making lines plumbed into heavy losses.  The investment in large capacity ships accelerated competition among liners to the extent that they were even willing to accept freight rates below or close to operating cost. According to Drewry Maritime research, container shipping sector made an estimated collective loss of USD 6 billion in 2011! The financial status of the container liners were not look so positive in 2012 too,  as many lines reported financial  losses in the first quarters of 2012 .    

 Carriers have invested in ever larger ships to benefit from economies of scale which in turn add to the general oversupply of capacity and put further downward pressure on freight rates.  Lines are taking different approaches to confront the oversupply and worsened financial performances. This paper covers the general measures taken by the liners for matching the oversupply to the volatile demand. 

 

1. REGULATE NEW ORDERS TO CHECK ON CAPACITY GROWTH

 

The world fleet continued to expand to reach 1,534 million dwt. in January 2012. However the drastic downturn in new orders due to the world economic crisis has  led to a reduction in the world order book by one third during the 2008 -2012 period. The order book in early 2012 is down to approximately 21% of the existing fleet tonnage compared to 44% four years earlier.

 

 

 

According to Clarksons, container ships on order is 3.5 million TEU which is equivalent to 22% of the current fleet. This is still relatively large but the figure has come down significantly from the  year 2008 (1209) to 2011 (602).   However, the order book for container ships actually increased between the period of end 2010 (566) to end 2011(602) as some of the leading container liners placed new orders for ships above 10,000 TEU in the quest for economies of scale and cost reduction.

  Alphaliner statistics show that world No.1 Maersk and No.2 MSC between themselves accounted for more than half of the total new capacity in past one year.  At the beginning of 2011,  Maersk Line announced that it has ordered twenty 18,000 TEU “Triple-E Class Ships”. Also, with a view to achieving economies of scale, the No.3 liner CMACGM reportedly is in negotiation with shipyards in Korea for enlarging 5 ships from their original specification of 12,800 TEU to a new specification of 16,000 TEU. Evergreen, the only line which had not invested in ultra-large container ships till recent timess, has placed an order for 10 vessels of 13,800 TEU each in early 2012. 

 2. TERMINATE OR POSTPONE ORDERS TO SLOW DOWN CAPACITY RELEASE

 

Although the major shipbuilders are reluctant to cancel or postpone deliveries, almost all shipping companies restructured, to the possible extent, the order book in 2009. Many deliveries were postponed, cancellations were few.

 

 

In this context it is worth to mention Maersk Line’s chief commercial officer Mr. Lucas Vos’s words here  (Container Shipping & Trade ,August 2012) ,

 “If I look at our order book now, it is about 18-20%  of what we currently have on the water, and that is healthy. Earlier in the year (2012) we decided not to take the third option on the third batch of the Triple-E vessels, so we are going with 20 of  that size of vessel rather than 30.

 

That also gave a signal to market that we are happy with the market share that we have. We are going to defend that, but it is not our ambition now to grow a lot more than that. I think that if we had ordered that third batch of 10, that would have given an inconsistent sign because it would have implied growth. Even with the vessels that will be delivered, we can absorb that extra capacity without growing our market share.” he said.

 

3. SLOW STEAMING FOR CPACITY ABSORBTION AND BUNKER COST SAVINGS

 

Various degrees of slow steaming have become standard practice for most container services as a way of controlling escalating fuel cost at a time when demand has stagnated and deliveries of new vessels have created surplus capacity. The global containership fleet has been reducing sailing speed from 24-25 knots to 21 knots (slow steaming), 18 knots (extra-slow steaming) and to 15-16 knots (super-slow steaming) so that it will be necessary to deploy more number of vessels to meet the same demand or to maintain the same frequency.  Alphaliner, Paris based industry analyst, estimated that by December 2011 around 7 million teus had been absorbed, which otherwise would have been a surplus,  through this measure. Slow steaming 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/ tonne in July 2009, which had gone up to USD714 by 2012 beginning ! As of now, the main parameter which determines the sailing speed of a vessel would be the fuel consumption and therefore the operational cost.

 

Using the slow steaming technique, in 2011, Maersk Line launched Daily Maersk programme providing customers with a ‘conveyor belt’ service between selected ports in Asia and Northern Europe.  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.

      

4. TEMPORARILY WITHDRAWING EXISTING TONNAGE FROM THE SERVICE

 

As per UNCTAD report , in early 2012, about 5% of the container ships were idle which include 6 ships larger than 10,000 TEU. A containership which is not participating in a regular service for a period is said to be idle. Continuing growth in global container capacity coupled with sluggish volume forced liners to lay up ships to manage capacity. The fuller the ship, the more likely rates will rise and vice versa.

Lines are taking different approaches to confront losses. The Malaysian shipping company MISC closed down its container activities completely in early 2012. Some other liners skipped several individual sailings and suspended many services as a measure to manage over capacity.

 In early 2012, Maersk had skipped several individual sailings of their Asia – Europe services . Also they have completely stopped booking on their Europe – Asia trade in March’12. By this measure they have withdrawn about 20% of their capacity from the Asia – Europe trade. In June’12 MSC stopped accepting booking on the Europe – Asia trade for a 3 week period. COSCON , YML, K Line and Hanjin too withdrawn capacity (NE1,NE4,MD1 services) from the Asia-Europe trade. Moreover , Evergreen and Hanjin confirmed that they will no longer be launching a new service in this trade, instead they would prefer to maintain the existing services. This measure along with several general rate increase (GRI) attempts helped liners to keep up the demand in Asia-Europe , east & west haul,  trades.   

 

5. DEMOLISH OLDER VESSELS  TO ALLEVIATE OVERCAPACITY IN THE MARKET

 

Carriers preferred to demolish vessel rather than selling it for other owner as the second hand owners would be competing for same cargo in the market.  Also, as the new vessels are  more cost and energy efficient , many vessel owners found it more profitable to sell older ones for scrap instead of continue to trade them at a financial loss.

 

As per Containerisation International (August,2012), about 62 container vessels with a combined slots count of just over 1,33,112 TEU had been sold for scrapping in the first 6 months of the 2012. Majority of ships which demolished recently were older than 25 years of age. General practice is that the container and general cargo ships are kept in business beyond the age of 30. However, lack of employment prospects is forcing the owners to sell younger ships for demolition. In May 2012, a 13-year old ship was sold for demolition, making it the youngest vessel scrapped since the economic crisis  in 2008.

 Most of the ship recycling takes place in Asia, India leading with 33%of GT demolished, followed by China (23.9%), Bangladesh (22.4%) and Pakistan (13%). India is specialised in scrapping of container and other dry bulk cargo. (Source – UNCTAD , Review of Maritime Transport, 2012).

 

6. REGROUPING OF LINERS FOR CONSOLIDATION AND RESTRUCTURING OF CAPACITY

 

The investment in large capacity ships accelerated competitions among the liners . High volume routes, in particular the Asia – Europe trade route, experience heavy competition as operators place their biggest ships in these route for economy of scale and more regular services. Furthermore, with a predicted growth rate of  25% for the above- 8000 TEU vessels in 2012,large scale capacity will continue to enter this market segment. ( Source – UNTCTAD’s Review of Maritime Transport 2012 )

 

As a result  , shipping lines formed alliances to share costs , optimum utilisation of capacity and streamline their operations. All major lines have in recent years increased vessel sharing arrangements with other carriers. Classic example of this trend is the partnership of world No.2 liner    Mediterranean Shipping Co (MSC) and No.3 liner CMA CGM . This partnership cover the Asia –Europe , Asia-Southern Africa and all South American Services.   Both companies are known as strong independent liners, especially MSC, which grows organically and maintained its family ownership throughout the crisis period. With this unexpected announcement they literally stunned the observers!

Similarly the G-6 Alliance formed by merging the Asia-Europe services between The Grand Alliance (Hapag-Lloyd, NYK and OOCL) and The New World Alliance ( HMM, APL and MOL) . And Evergreen joined force with the CKYH (COSCO, “K” Line, YML , Hanjin) Alliance to cope with the increasing competition. The Chilean carrier CSAV in 2012 increased their share of jointly operated services from 30 % to more than 90%.   Below table shows westbound vessel capacity of individual line’s as well as new alliances’ from Asia to Northern Europe as on 01^st April 2012.

 

 

As per latest UNCTAD report , feeder operators have also created alliances to better defend themselves against competition from the larger shipping lines. Several industry experts suggest that such mergers among shipping lines would be good for carrier profitability. However, these groupings will make it difficult for the medium to small individual lines with comparatively smaller vessels to remain afloat  and competitive.  

AGGRESSIVE CAPACITY MANAGEMENT PROGRAMME IS THE NEED OF THE HOUR

 

The global economic and financial slow down along with continued growth in fleet capacity and sluggish freight volume hit container trade hard. Financial performance of many liners shown signs of improvement in 2012 but is still far from satisfactory. As per the trade experts, significant improvement in demand growth in 2013 is not expected. However, the supply of new super-generation vessels will continue to exceed demand growth, even though carriers have taken various measures to control the capacity growth. 

 The rising bunker prices and other operating costs continued to threaten carriers’ much needed financial recovery. According to many financial statements, fuel costs are about 60% of voyage cost , needless to mention the increased bunker price rubbed more salt into the already bleeding wound. This in turn lead to adoption of strategies like deployment of energy efficient megaships, super slow steaming , vessel  lay- ups and demolition of even younger vessels.

 Another major problem for the industry is that the new generation mega vessels have only limited deployment options. They are mainly restricted to the Asia-Europe trade, which continues to struggle due to the sovereign debt crisis in Europe and other difficulties facing the advanced economies. Indeed, the carriers have continued to revamp the service strings and omit sailings to protect the revenues.

 The container trade plagued by overcapacity and poor financial performance is still sailing through troubled waters. To tide over the situation ,  for a better financial performance, carriers need to adopt to more aggressive capacity and cost management programmes.