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Thai National Shippers’ Council
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JOC 24/2/14 - Reefer Shippers Stress Over Slower Ship Speeds, Fewer Port Calls

Following a frenetic decade of ups and downs in volumes and rates, the steamship industry is seeking stability through alliances and cost-cutting that has lengthened voyage transit times. While many shippers don’t see much of a problem in slow-steaming, exporters of refrigerated goods have more reason to be concerned.

 

In the proposed P3 Network among Maersk Line, CMA CGM and Mediterranean Shipping Co., ships moving from Asia to the U.S. will get a speed boost to

19.9 knots. The three carriers plan to offset the eastbound increase in fuel by using less on return trips to Asia. U.S. food exporters will see vessel speed slow to just 12.4 knots, subtracting valuable days of shelf life for perishables such as fruits, vegetables and chilled meats. A decade ago, vessels regularly sailed to Asia at 18 to 20 knots, or higher.

 

Perhaps more troublesome to exporters is the move among the P3, the G6 alliance and other individual and cooperating steamship lines to trim port calls, something that translates into increased transshipments.

 

The combination of slower speed and fewer direct routes makes it more challenging to get high-value foods from field to foreign table.

 

Meat exporters have mixed feelings about the slower transit times. “If it adds a day-and-a-half to what is now a 21-day trip, or two days to a 28-day trip, in most cases it would be manageable,” said Joe Schuele, a spokesman for the U.S. Meat Export Federation. “Exporters that regularly deal in our major markets are confident in where shipments go and are consumed, and they know the leeway available.”

 

But Schuele thinks it’s unlikely ultra-slow-steaming will lead to a modal shift. “Overall, only a very small percentage of meat is shipped by air,”

he said. “We had some success with chilled exports to Russia by air before the Russian market was closed to us. We don’t think this will be severe enough to push shippers to air.”

 

Meat exporters don’t want to “sound like alarmists,” Schuele added. “I don’t think it’s going to cause a major slowdown in sales. But it is not a desirable change for a market that depends on getting a product in place quickly.”

 

The concern, he said, increases when looking at markets the pork and beef industries are trying to develop, noting they are farther away geographically.

 

Chilled meats, as opposed to frozen, sell for a much higher price in Asian markets, and the reputation of the premium products is what sets U.S. meats apart, he said. “The growth in chilled meat exports has been an important part of increasing our sales in Asia,” Schuele said. “And anything that might hinder market growth or curb enthusiasm for our chilled meat isn’t good.”

 

In the burgeoning Japanese market, half the beef and pork sold is chilled, a percentage that has been increasing there and in other key markets. “We would like to keep moving forward in Asian markets. As we make our way into those destinations that are farther west, it becomes more and more of a logistical challenge to deliver that product,” Schuele said.

 

Robert Brown, an independent contractor who acts as export manager for Delta Packing of Lodi, Calif., and Pinnacle Trading International of Gilroy, Calif., agrees that the slower speeds shouldn’t impact the status quo on shipping. “About 90 percent of cherries go by air,” he said. “At 12 knots, we aren’t about to switch that out for ocean, but we might consider it at a higher speed.”

 

But perishables that now ship by ocean, including other stone fruits, avocados, citrus, onions and garlic, will continue to move on the water.

 

The biggest problem, Brown said, isn’t distance or speed, but the reduction of port calls. “Some shippers are refusing to use carriers that have increased transshipments,” he said. “There is always the potential problem of missing a feeder vessel. And that often means a box of damaged fruit.”

 

Missing connections with a box full of fresh fruits or vegetables goes beyond the inconvenience of a passenger missing a connecting flight on a trip, he noted. “It might be a week or two before the next feeder,” Brown said. “I had a shipment recently that missed two feeder vessels, and it wasn’t pretty after 70 days in a container.”

 

The number of missed connections during transshipment is growing along with the reduction in port calls, he said. “If that situation grew into some of the more crucial markets, it would become a big deal,” Brown said. “It would definitely be something that would force me to change carriers.”

 

Patrick Brecht, an industry consultant who combines a doctorate degree in plant physiology and post-harvest biotechnology with decades of experience at APL, Sea-Land and Chiquita, says transshipment hubs are the danger spots for perishable shipments. “Refrigerated containers are astonishingly reliable,” he said. “For the most part, there aren’t problems on the high seas. But the more times a container shifts from one vessel to another or from one mode to another, the likelihood increases that something will go wrong.

 

“The more people that handle a box really complicate things because there is a higher chance for human error. In Latin America at Christmas time, some boxes are just powered off and the cargo rots,” he said.

 

“Vessel sharing has made the whole situation worse,” Brown said. If you miss a feeder or you want to get access quickly at the terminal, your carrier rep really has no pull in getting cooperation from the operating vessel carrier.”

 

Building a relationship with a carrier is critical to alleviating risk, Brown said. “If I’m shipping 500 boxes a year with a carrier and one misses at a transshipment point, you should be able to count on your carrier rep to make sure it gets on the next one, or doesn’t miss it in the first place,” he said.

 

A good shipper-carrier relationship is important to seamless business for both, according to Bill Duggan, vice president of North American refrigerated services for Maersk Line. Contract negotiations, he said, frequently focus on rates to the exclusion of everything else. “Often times we go into contract talks determined to get long-term contracts sewn up,”

Duggan said. “In the end, I’m not sure it’s the right model to tie rates up for a year or even longer.”

 

For commodities that move on a regular year-round basis ­ such as frozen potatoes, meat and bananas ­ a year-long rate pact might work, he said, “but for seasonal commodities, we need to be nimble and put things together quickly so we are addressing global competition along with service factors.”

 

With seasonal commodities, price often isn’t No. 1 ­ shippers have service concerns above rates because they are perishable commodities, Duggan said.

“Having the right rate is an important factor, but there are so many things going on in the supply chain,” he said. “Carriers and shippers both have to focus on making things more efficient.”

 

Instead of just rates, he said negotiations should include other items, such as point of service, communications, coordination, documentation and on-time reliability. “Someone on the carrier’s side needs to shepherd the business from inception of a booking all the way through to delivery.”

 

Developing a rate index system is one way shippers and carriers can move past a rate-only negotiation, he said. “Once you work through how it will be set up and how it will work, you get to see a blended view of the market,” Duggan said. “That puts you more into a strategic partnership with a customer and the supply chain moves for everyone with a lot more predictability.”

 

Duggan said slow-steaming is here to stay on westbound shipments, but there is a good prospect of increased on-time delivery for reefer shippers if regulators in the U.S., European Union and China approve the P3.

 

“Right now, we are in a vessel-sharing alliance, but still operate as separate companies,” Duggan said. “Each one operates different vessels, uses different ports and has different on-time performance.”

 

The plan is to operate the vessels neutrally and in a standardized fashion.

Maersk Line consistently has the highest on-time performance rating of any container carrier, according to data compiled by research analyst SeaIntel.

 

In a report issued in January, SeaIntel said P3 partner MSC has the worst on-time performance in the industry, with CMA CGM in the middle of the pack. “The goal is that the P3 on-time reliability rises to meet Maersk standards,” Duggan said.