Sunday 19th Nov, 2017

INDUSTRY OPINION: Addressing the structural challenges of Australia’s international supply chain

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EARLIER in the year, the Australian Peak Shippers Association (APSA) was swamped with concerns regarding a “capacity recession” on exports during peak. The feedback centred on the availability of space on the berth for exports, steep repositioning fees for 20-foot containers and increased reports of cargo rollovers, cancelled bookings and blank sailings.

So, is there a capacity shortage?

It’s important to note that we are coming from a position of significant over-capacity. In 2014, the total nominal southbound capacity for North and East Asia trade was 1,730,560 TEU, or 33,280 TEU per week. But actual southbound liftings for the year were just 1.3 million TEU with northbound approximately half of that. Therefore, in broad terms, overcapacity was more than 30%. The situation was largely untenable and even shippers accept that.

Are we now seeing a capacity correction?

In May 2016, the China Korea Australia (CKA) service was cut, taking 4300 TEU (nominal) per week out of the market. However, Maersk Boomerang has gone up from 4500 TEU ships (ie per week) to as much as 6000 TEU.

In August 2016, Hanjin, which was a significant participant in three services, declared bankruptcy. However, their allocations were taken up by consortium partners, limiting the overall capacity impact on shippers.

In October 2016, ANL, Cosco/China Shipping/OOCL rationalised their three services into the A3 consortium and saved themselves two ships. However, they kept all previous ports of call and frequency, and standardised two of the three services with 5700 TEU rather than a previous mix with smaller tonnage (mostly 4500s).

From what we can see, in terms of the availability and frequency of services, capacity is steady. However, capacity is not about the availability and frequency of services. Capacity is always influenced by cargo weight. The average southbound (from Asia) TEU weighs just nine tonnes, while the average northbound TEU is 17 tonnes. Containerised grain shipments typically weighing 24 tonnes and up to 30 tonnes. Deadweight capacity is a completely different story and no doubt this was a large factor behind the capacity issues faced in last peak, with the record grain output. With Australia continuing to invest heavily in our agri-export capability, this is a structural issue that will not disappear any time soon.

The availability of 20-foot containers for export during peak is another structural issue that needs to be addressed. We acknowledge Shipping Australia’s identification of the issue as largely “supply and demand” driven. As we all know, Australia relies on 40-foot containers for import (approximately 70% of southbound containers) while we rely on 20 foot containers for export (approximately 45% of northbound containers). The supply and demand mismatch is clear, with Australian trade largely driven by southbound flows. This is notwithstanding the unverified concerns submitted to APSA by members during peak that supply was being manipulated, with the exporting of empty 20 foot food grade containers, while the deficit was at its worst.

While shippers are preparing for next peak, some shipping lines are still imposing a “Peak Season Surcharge” for grain and other commodities….in August! It might be time to mandate sunsets on these kinds of surcharges.

At the end of the day, if we take consolidation events and supply manipulation concerns out of the equation, it all comes down to accurate forecasting. The feedback I have received from members is that some shipping lines have lost the plot in that area, while others (such as ANL) are leading the way with shipper engagement.

Shipping lines may also identify issues with shippers in making phantom bookings, short shipments, etc., and we accept that. Disciplines are required on both sides.

APSA now represents 550,000 standard containers on export annually, making us the largest representative group of containerised exporters in the country. We will continue to facilitate discussions between shipping lines and shippers, with the hope that history will not be repeating itself next February.

* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association

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