Canadian Shipper

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MARINE CARRIERS: Canadian carriers enjoy quieter waters than global operators


While a new generation of megaships on order is contributing to massive overcapacity on the global container market and driving spot freight rates to historical lows in some ocean trade lanes, it remains steady-as-she-goes for Canadian and other shipping lines pursuing fleet renewal for cargo traffic in the Great Lakes/St. Lawrence Seaway System.

The latter is part of several billion dollars of investments in recent years by key players in the North American maritime corridor. The ships come with the latest state-of-the-art designs to enhance energy efficiency and environmental performance. The considerable outlays represent a vote of confidence in the long-term future of the strategic waterway despite current traffic declines generated in particular by plunging world commodity prices.

During the course of 2015, Montreal-based Fednav Limited, biggest ocean-going user of the Seaway, will have taken delivery of six Seaway-sized vessels, part of a 27-ship order, from Oshima Shipyard in Japan.

These six ships are being integrated into the fleet of FALLine, which has been operating a liner service between Europe and Great Lakes ports since 1996. They differ from earlier versions due to box holds that notably improve loading and unloading of steel – major import business from Europe – and project cargo.

First of the 31,000-DWT newbuildings to enter service was the Federal Baltic. It was followed in the summer and fall by the Federal Beaufort, the Federal Barents, the Federal Bering, the Federal Bristol and the Federal Biscay.

Worthy of note: the Federal Biscay has been singled out to be first in the Fednav fleet to be equipped with a Japanese ballast water system, BallastAce, designed to be effective in both freshwater and saltwater. It has been submitted to the U.S. Coast Guard for approval.

Algoma Central Corporation, which operates the largest Canadian-flag fleet of dry and liquid bulk vessels, recently underscored its commitment to fleet renewal by signing a conditional contract to build three new Seaway-max self-unloaders with a Croatian shipyard. This came on the heels of the cancellation of a contract with a Chinese shipyard as a result of the yard’s financial problems.

Wayne Smith, senior vice-president, commercial at Algoma Central Corporation, said the latest ships will possess “all the environmental advances and efficiencies of our new Equinox class and are essential to supporting the competitiveness of our industry and our customers. Algoma is continuing discussions with other parties on further fleet renewal opportunities.”

Headquartered in Port Dover, Ontario, Lower Lakes Towing transports bulk cargo to Canadian and U.S. Great Lakes ports. This past fall, it took delivery of its newest self-unloading vessel, the MV Manitoulin, from a Chinese shipyard – boosting the size of the Lower Lakes fleet to 16. Soon after arrival in November, the vessel was slated to start carrying limestone to various Great Lakes ports to support the construction industry.

“This vessel is the first new river class self-unloader to be introduced into Great Lakes service in over 40 years,” said Scott Bravener, President of Lower Lakes Towing. ‘This additional capacity reaffirms the company’s commitment to support the growth of its customers.”

In other similar developments, McKeil Marine, a Hamilton-based tug and barge enterprise, added a bulk vessel to its fleet for customers throughout the Great Lakes and East Coast of Canada.

Thanks to the completion of its fleet renewal program, Canada Steamship Lines has added four self-unloaders and two gearless bulkers to its Great Lakes fleet. At the same time, it is now deploying five new ships on the international trades.

 

Escalating megaship trend

Meanwhile, the trend towards ever larger containerships has been escalating unabated, with growing pressures on port terminals, inland distribution networks, freight rates, and on smaller shipping lines trying to survive against such giants as Maersk, MSC, Hapag Lloyd and CMA CGM.

Latest tally shows 20 megaships with a capacity of 18,000 TEUs in service and another 52 on order. Indeed, since the turn of the millennium, container shipping capacity has doubled every seven years. It will attain 20 million TEUs this year – up from 5 million TEUs in 2000!

The behemoths are presently being introduced only on the Europe-Far East trade, the world’s busiest route by volume. This is having a cascade effect on other routes. Larger vessels that previously plied the Europe-Asia route are being displaced into Trans-Pacific service. And former Trans-Pacific units are moving into Transatlantic services. A sign of the cascading phenomenon was the arrival at the Port of Halifax last August of ships in the 8,500-TEU category – the largest to call on Canada’s East Coast.

Some industry analysts consider the megaship trend could (finally…) be reaching its limit as the economies of scale associated with huge vessels up to 400 metres long decline.

In this regard, according to a report by the International Transport Forum of the Paris-based Organization for Economic Cooperation and Development (OECD), slot cost savings are decreasing as ships become bigger.

The report asserted: “A large share of the cost savings were achieved by ship upsizing to 5,000 TEUs, which more than halved the unit costs per TEU, but the cost savings beyond that capacity are much smaller.”

For its part, the respected UK shipping consultancy, Drewry Maritime Research, has warned that slowing global trade and a bloated orderbook of large vessel capacity mean that container shipping is set for another three years overcapacity and financial pain.

Drewry’s Global Supply/Demand Index, which measures the relative balance of vessel capacity and cargo demand in a market where 100 equals equilibrium, has fallen to a reading of 91 in 2015 – the lowest level since the recession-ravaged year of 2009.

Consequently spot freight rates have especially dropped to historical lows on the Asia-Europe, Asia to East Coast of South America, and Asia to Middle East trades.

Interestingly enough, the transatlantic trade between Europe and North America has recently evolved from its former ‘sleeping dog’ status. Various carriers have even bolstered capacity to keep pace particularly with rising volumes on the westbound leg as a weak euro and strong U.S. dollar spark European exports to North America. The impact of this trend is felt to a certain degree at the ports of Montreal and Halifax as well as at U.S. ports on the eastern seaboard.

But assessing the overall picture, Neil Dekker, Drewry’s director of shipping research, offers a sobering outlook.

“The container shipping industry,” he says, “is in the midst of an overcapacity crisis which will worsen next year. Shipping lines will need to idle a much larger portion of the fleet than they have hitherto been prepared to do. Otherwise, short of an unexpected recovery in traffic volumes, container shipping is set for several years of overcapacity and mounting financial losses.”

 


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