March 2017 Newsletter

Mar 20, 2017 | Member Newsletters


2017 promises to be extremely busy as NZSC continues to support and advocate on behalf of shippers in a time of high change and uncertainty for our sector.
We want to ensure that members are actively involved in determining NZSC policy positions on the range of regulatory issues confronting our sector and encourage you to participate in the calls for member information raised in this newsletter.

NZSC 2017 Strategy Day and AGM

Please make a note of the following date:
Strategy Day – 27 June 2017, Wellington. The day will include half a day of strategy discussion amongst the membership and half a day of meetings with officials and politicians.
More details to come closer to the event.
Note: the 2017 AGM will be held in November and will include engagement opportunities with the incoming government and/or officials.

RECAP OF OGM (February 2017)

NZSC members can access a detailed review of presentations from our recent OGM included in the Minutes of the OGM available here . Presentations included:

Changes in the Commerce Act and Shipping Act – David Blacktop, Commerce Commission
The presentation backgrounded the Commerce (Cartels and other matters) Amendment bill, outlined its scope and intent, and responded to questions around its application to international shipping. Some misperceptions around how the Commission operates were addressed, for example the suggestion that Commerce Commission approval is required any time a line wants to change a service was corrected – the Commission looks at clear, broad service parameters and not specific services.

The discussion also traversed questions around the Maersk / Hamburg Sud merger and the associated regulatory process in New Zealand. It was noted that while the current regulatory framework empowers the Commission to take action against anti-competitive behaviour in the NZ marketplace, the difficulty is understanding what affect the merger activity of global entities will have in NZ. Refer article below for more on the Maersk / Hamburg Sud merger and NZSC’s position around this.

Following the presentation members requested that NZSC prepare a follow up letter to the Government re-iterating the Council’s position on the bill, outlining the urgency related to upcoming consolidation of carriers, and restating the need for some controls on market dominance while giving flexibility for VSAs.

Coastal Shipping: Issues and Opportunities – Annabel Young, Executive Director, NZ Shipping Federation

The Kaikoura earthquake has brought coastal shipping to the forefront of policy makers’ minds. The NZSF presentation reviewed the effect of the earthquake on about freight flows, interconnectedness of transport providers and effects throughout the country.

The Shipping Federation is keen to see commitment from government on:

  • A dry dock facility– ships currently go to Singapore empty and back or get into Australian facility but this is often full. This is an opportunity for New Zealand to also gain custom from Pacific Islands and even parts of Australia.
  • An improved ferry terminal in Auckland

MARPOL Annex 6 – Prevention of air pollution from ships (Global Sulphur Cap)

Emissions regulations have a big impact on the maritime industry. MoT provided an overview of current regulations with focus on the recent IMO Maritime Environment Protection Committee (MEPC) agreement to set 1 January 2020 as the implementation date for a significant reduction in the sulphur content of the fuel oil used by vessels operating on the open seas. This will see the cap decrease from the 3.5% m/m global limit currently in place to 0.5% m/m. (Note – this announcement was detailed in our November 2016 newsletter).

The presentation outlined MoT’s workplan to develop advice to the government on whether New Zealand should accede to Annex VI. The Ministry will be identifying options, assessing costs and benefits, and liaising with stakeholders and industry – with focus on what the implications will be for NZ shippers, shipping companies, and consumers if we sign or don’t sign.

NZSC members and affiliates expressed concern that the Ministry does not understand the commercial effects of moving to low sulphur fuel. There was concern about where the fuel would be held, whether it could be produced locally (seen as unlikely) and what costs would be imposed on to shippers.

We encourage all members and affiliates to provide feedback on the potential effects of signing MARPOL Annex 6. We seek your views on how this may impact your business to equip us with an informed platform for engagement with the Ministry. Please email the executive officer with your thoughts on this issue.

Refer to Sulphur Emission Cap: 2020 below for more commentary from the international marketplace

Lessons from the West African Ebola Outbreak in relation to New Zealand’s Supply Chain Resilience – Rick Boven (presentation slides are available here) Presentations concluded with a thought provoking and sobering case study of global event risk and the implications for New Zealand’s supply chain preparedness and resilience.

Note – the presentation slides are included with the detailed review of this presentation in the OGM minutes and are recommended reading for those who didn’t have the opportunity to hear this very timely presentation.

Sulphur Emission Cap: 2020

In less than three years, ships across the globe will mandatorily have to use low-sulphur fuels or gas instead of the high-sulphur fuel oil that currently dominates the market.

While the date of implementation of the new cap is finalised, the “fine print of how to enforce and implement” is not – which is a cause for concern internationally because the new rules  will entail additional costs that can cause serious commercial distortion if the implementation does not happen uniformly across the world.

With the implementation of the IMO regulation the shipping industry will have to consider a switch to alternative fuels, such as marine gas oil (MGO), or install scrubbers, a system that removes sulphur from exhaust gas emitted by bunkers. It seems very clear that both these options bring extra cost.

International Shipping News reports that global bunker fuel costs could rise by up to US$60 billion annually from 2020, in a full compliance scenario, when the sulphur cap for bunker fuels kicks in. Fuel oil, which is high in sulphur content, has traditionally been used by the shipping industry as bunker fuel.

A combination of higher crude prices and tight availability of MGO could take the price of MGO up to almost four times that of fuel oil in 2016, and eventually cost the entire industry additional US$60 billion annually.

It is also expected that there will be a shift in bunkering locations based on compliant fuels availability as shippers look for alternative locations with a surplus of compliant fuels. China, with ample MGO supply, is well positioned to attract shippers looking for MGO.

In order to comply with the new rules, vessels can choose to burn an alternative fuel (e.g., LNG or methanol) where the sulphur content is 0.5% or less. This has the added

advantage of reducing a vessel’s emissions of other environmental pollutants but retrofitting is very expensive, and global supply is sparse.

Another alternative is installation of an exhaust gas cleaning system (scrubber) which enables the vessel to continue burning up to 3.5% sulphur HFO. It is widely considered that there isn’t enough time or manufacturing resource to fit as many scrubbers as may be wanted as the deadline approaches. Scrubbers require additional energy

and sludge disposal costs, and only removes sulphur emissions so in the face of increasing marine emission regulation, may only be a temporary solution.

Proposed Maersk-Hamburg Sud Merger

To enable competition authorities to thoroughly investigate the impacts of the proposed Maersk / Hamburg Sud merger they need information from shippers on the potential impacts on competition and services. NZSC members who attended the OGM were given the opportunity to nominate themselves to be contacted by the Commerce Commission as part of their targeted market enquiry, and these names have been forwarded.

The Council has also been approached by the Commerce Commission to respond on behalf of the membership. NZSC is also working with the GSF on this matter. We are working towards compiling a comprehensive analysis of the impacts of the merger in the NZ context, including:

  • the extent of excess capacity in containerised liner shipping and
  • the ease with which shipping lines can divert capacity between trade routes;
    the ease with which customers/freight forwarders are able to switch between shipping lines; and
  • any other issues or information that you consider relevant to the likely competitive effects of the proposed acquisition.

To support this engagement process, we have distributed a questionnaire to members, and if you have not already done so you are reminded to please forward your responses to the executive officer. Your individual responses will be held in strict confidence – the information gathered will be anonymised used collectively in NZSC’s response on behalf of our membership.

Transport Knowledge Conference

The Executive Officer attended the Transport Knowledge conference, hosted by the Ministry of Transport with its partner agencies the NZ Transport Agency, Maritime New Zealand and the Civil Aviation Authority. The conference was an opportunity to learn about what the Government transport agencies are doing in the areas of research, statistics, economics and forecasting/modelling and included some interesting presentations on freight movements, transport routing around ports and other maritime related issues.

Port News

CentrePort strategy reviewed

Earlier this month it was reported that the majority owner of CentrePort, the Greater Wellington Regional Council (GWRC), has requested port management document its further post-earthquake recovery plans and accommodate a longer-term view of potential redevelopment options.

There has been speculation over the port’s future following the severe damage suffered to its container terminal in the Kaikoura earthquake (limited container shipping operations having only recently recommenced via self-geared vessels).

GWRC recently met to review a full briefing on the port’s recovery progress and consider its future, as part of the mandatory process of developing the port’s next statement of corporate intent.

GWRC expressed confidence in port management, saying the council is satisfied CentrePort is taking a disciplined approach in its recovery programme and recognising that it’s going to take time. It noted that it will be important to continue discussions around how the port contributes to the resilience of Wellington and has full confidence in the board and management team at the port that they will have these discussions in the right way at the right time.


International News:

Global Shippers (GSF) News

GSF will represent members interests’ at the upcoming IMO Maritime Environment Protection Committee (MEPC), July 3 – 11, 2017 where two most important issues will be the future direction of climate change strategy and the incoming global cap on sulphur used in fuel oil used by ships.

Pricing Practices in the spotlight

We note a recent Reuters report (March 22) that the U.S. Justice Department has ordered executives from several container shipping lines to testify in an antitrust investigation. Maersk, together with second Hapag Lloyd, Taiwan-based Evergreen and Orient Overseas Container Line (OOCL) executives were among those who had been subpoenaed. The U.S. enquiry follows those in other jurisdictions including South Africa and the European Union, which have examined pricing practices by the sector. In July last year, EU anti-trust regulators accepted an offer from Maersk and 13 competitors to change their pricing practices in order to avoid penalties.

Shipping Crisis Hits German Lenders

Wall Street Journal reports that the global shipping crisis is stoking another European banking headache, this time in Germany. In February Commerzbank AG warned that its losses on shipping loans could be as high as EUR600 million this year after nearly doubling last year. And Deutsche Bank AG, Germany’s largest bank, said its expected losses from shipping loans nearly tripled, to EUR346 million, from a year earlier.

German banks and investors own more of the world’s containership capacity than any other country — roughly 29%, according to the German Shipowners’ Association. Plunging world shipping rates and the bankruptcy of South Korea’s Hanjin Shipping last year helped create a bloodbath for the sector, Banks world-wide now are racing to dump bad shipping loans while shippers scramble to unload worthless ships.No bank epitomizes the problem more clearly than HSH Nordbank, whose lending spree left it owning a commercial fleetlarger than the British, French and German military navies combined. European Union authorities have ordered the bank to be privatized by early next year or shut. Taxpayers in northern Germany face losses of up to EUR15 billion, or over EUR3,000 a person.

Shipping alliances shore up industry but unsettle shippers

As the industry braces for the new alliance networks set to enter the stage on April 1 there has been much international commentary about what’s ahead. The massive industry consolidation initiated in 2016 will eliminate seven of the top 20 carriers, and has led many to believe that rates will rise. But others remain skeptical, citing multiple mega-ship deliveries yet to occur and overcapacity still remaining in the market.

Nevertheless, concerns remain that the consolidation in the industry is limiting choices for shippers.  With the remaining ocean carriers now consolidating into just three alliances using megaships, while total capacity may remain the same, there are concerns about a reduction in the frequency of sailings. Disruption is also of concern. When a shipping line moves from one alliance to another, both alliances need to redo their networks. It’s expected that there will be periods with frequent changes to services and offered capacity and fluctuating reliability.

For a look at how the new alliances line up Drewry compared the new alliances respective port coverage, frequency and speed.The alliances compared are the 2M alliance, comprised of Danish Maersk and Swiss Mediterranean Shipping Company (MSC), Ocean Alliance, made up of French CMA CGM, China’s COSCO, Taiwanese Evergreen and Hong Kong’s Orient Overseas Container Line (OOCL), and THE Alliance, comprised of German Hapag-Lloyd, Taiwanese Yang Ming and three Japanese companies Mitsui O.S.K. Lines (MOL), Nippon Yusen Kaisha (NYK Line) and K Line.

Ocean Alliance’s status is primarily due to it having seven Asia-Middle East/Red Sea services, whereas THE Alliance has only one and 2M none. 2M also loses ground in the Asia-West Coast North America with only five services, compared to Ocean Alliance’s 13 services and THE Alliance’s 11, Drewry said.

The Ocean Alliance wins out with the most services in three of the seven trades and joint-most in two others along with 2M. THE Alliance has the most services in just the one trade – Transatlantic – and shares top billing in Med-North America with 2M.

With ship deployment details currently unknown, it does not necessarily follow that having the most services will equal the biggest market share on the trade. 2M’s lack of numerical advantage in services will in many cases be compensated by operating larger ships, the consultancy further said.

Asia port coverage

Central China will have the most weekly departures from the Far East with 131, followed by 118 from the Hong Kong/Taiwan/South China region, 98 from North Asia and 70 from Southeast Asia, Drewry’s data shows.

The most heavily used ports in Asia will be Shanghai (58 weekly departures) and Ningbo (54). Busan has the most departures (32) in North Asia, ahead of Qingdao (25).

North Asia is where the biggest evidence of nationality-bias can be seen as the main customers for Japanese ports will be THE Alliance and its trio of Japanese members.

Yantian will be the busiest port in the South China region with 42 outbound calls, ahead of Hong Kong (26).

In the transshipment-heavy Southeast Asia region, Singapore is the clear winner with 35 outbound weekly calls.

Europe port coverage

Rotterdam will be the busiest port in North Europe with a total of 21 inbound calls each week, followed by Antwerp (19).

In France, Le Havre is the main port of call with 13 inbound voyages per week, while the Ocean Alliance is the only group to venture away with a single call at Dunkirk.

Germany’s calls will be split equally between Bremerhaven and Hamburg (13 each).

2M has the clear edge in Scandinavia/Baltic with calls at three ports, versus only one from Ocean and none by THE Alliance.

In the United Kingdom, Southampton leads the way with 10 inbound calls, closely followed by Felixstowe with 9. London Gateway gets its first deep-sea connections with the decision by THE Alliance to use it for two Asia-North Europe services and two Transatlantic loops.

2M has significantly more port calls in the West Mediterranean with 25 inbound calls, versus 19 from Ocean and 16 from THE Alliance. Thirteen West Med ports will receive alliance ships with the most frequently served being Valencia (10), Barcelona (8), Genoa (8) and La Spezia (7). Strike action at Spanish ports couldn’t have been worse timed for all of the alliance members, Drewry noted.

There will be a total of 42 inbound calls each week in the East Med/Adriatic, spread across 19 ports. Only a handful of ports will get more than two calls each week, with Piraeus being the busiest one with seven calls, according to Drewry.

North America coverage

The South Atlantic of the US will turn around the most alliance services with a total of 72 inbound and 70 outbound calls each week, more than double that of any other region in North America. Norfolk, Savannah and Charleston will be the busiest of the eight South Atlantic ports served by the three carrier groups.

New York-New Jersey will be the main port for services into the North Atlantic, where 2M is conspicuously weaker than its rivals. Instead, 2M’s focus appears to be in the US Gulf region with a total of 12 inbound calls, spread fairly even between the six regional ports. In contrast, the Ocean Alliance has nine weekly US Gulf calls while THE Alliance only has six.

2M also lags behind the other two alliances in the Pacific Southwest and Pacific Northwest. Its 5 PSW calls at Los Angeles-Long Beach and Oakland are well down on the 15 inbound PSW calls from Ocean and 17 from THE Alliance.

Similarly, 2M’s four weekly PNW port calls are dwarfed by eight from THE Alliance and 11 from Ocean, Drewry said.

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