Fate of intra-Asia trade lanes is fixed to only growth there is - China's
 TO Tom Wickmann, CEO of MCC Transport the only growth worth talking about - as poor as it is - is China's. "That's the only growth there is," he told the TPM annual shipping conference in Shenzhen.
Based in Singapore, MCC Transport is Maersk's intra-Asia specialist and as such its 21st biggest liner company in the world with a staff of 500, who operate 74 ships, ranging from 1,100 - 5,000 TEUers and call at 204 ports a week with agencies in 14 countries.
While Mr Wickmann could point to three per cent intra-Asian trade growth - which on the face of it, looks good given the state of the market, such a conclusion does not bear close scrutiny.
"What you can't see is that the three per cent growth is very uneven. I have been CEO for MCC for eight years and, and this is the most awkward growth scenario that we have seen so far.
"Why? Because all the growth is coming from China. There’s basically no growth from any of the other countries in the intra-Asia market. In fact, countries like Taiwan and Japan, that has dropped considerably year on year, even a double digit drop on the intra-Asia trade.
"China is a very big chunk of the total so when China grows, actually it means that the whole intra-Asia grows, but that number is actually not really very valuable," he said.
More relevant is assessing how individual trades do and how the individual countries and ports are growing.
Mr Wickmann's wide-ranging talk before 400 delegates also dealt with issues peculiar to the intra-Asia trade. He debunked notions that outmoded panamax ships would cascade down into the intra-Asia trade. Not so, he assured them.
Next was the notion that there was money to be made in intra-Asia trade lanes because it was now the biggest trade by volume. But Mr Wickmann complained that he was now the unhappy and unwilling operator of a charity providing free shipping, only hoping shippers would be kind enough to cover terminal handling charges.
And the only way to fight what was becoming a general phenomenon throughout the trade, was to achieve cost-savings for which he and MCC had taken extraordinary action.
Nor did he have much time for young software start-ups who disrupted the conference with plans to digitised the world, commoditise forwarding and have customers fill in endless forms while waiting for their Windows to open.
And no, low oil doesn't help make money as much as many conference delegates expected. Another misconception alive in the shipping community was the treatment of intra-Asia as a single market, when it was not.
"It’s made of different markets," he said. "Take Korea, north China and east China just to Vietnam, Cambodia and Thailand - that’s kind of a defined market in itself.
Mr Wickmann said there are 97 weekly services in this market and 29 carriers. "So, the competitive landscape in intra-Asia is also very different from long haul trades."
"There are not many alliances, he said, but there are a lot of slot swaps in the intra-Asia so, so many carriers have their own services, but they also use the services of competitors.
"The profitability for intra-Asia shipping lines is very, very low, and one of the scary parts about that is that our cost data is actually also the lowest it’s ever been," he said.
So whence do cost savings come? Time charter costs have seldom been lower and and oil prices are low, despite recent rises.
"So there’s, there’s not too much more we can do to sail our ships cheaper than what we are doing already, so if we are not making money today at the present freight rates, then, then what’s going to happen when, when the oil price or the THC levels increase," he said.
So Mr Wickmann's approach to generating cost saving is to fix productivity. The issue is not so much the ports in themselves, because the issue in intra-Asia is not that the ports have to be ready for 18,000-TEU ships, but rather with smaller ports and these smaller ports that are actually growing considerably and the infrastructure behind these ports are not ready to handle this growth."
He recalled the disaster in Manila two years ago "when our ships were waiting for two weeks just to get a berth".
But the was not because of because of mis-performing terminals, it was the [road] infrastructure behind them that, that didn’t work.
Myanmar had an 11-day holiday and Myanmar is growing. "So when you stop working for 11 days, the cargo still pours in. You can imagine what happens to the port capacity!"
Mr Wickmann told of the situation in Rangoon (aka Yangon) where the port is in the middle of the city and there is no decent infrastructure, So very quickly the ports were totally full and, and "we ended up waiting two weeks to get a berth".
The worst place was Bangladesh, he said, where the ports are "swimming in containers" and cargo is still coming in and it’s impossible to get a berth.
What he wanted was carriers and ports to work together to improve productivity. "And when I say the productivity, it is not just the number of moves a crane does, but how fast can the ship come in and out, because that’s really matters to us."
In places were MCC has large transshipment operations, Singapore, Tanjung Pelepas, Hong Kong, and increasingly in Port Klang, MCC people in the terminal work with the terminal in advance to get things ready so the ship can go in and out. They also see to it the bunker is on hand that the right trains are where they should be.
"We also have a 'SWAT [special weapons and tactics] team', we call in when we are really fed up with the ports. We send in the SWAT team and help the port improve productivity.
"I, of course, know perfectly well that when we do that, then we help all carriers, but, but as we are the biggest, so we get the best benefit."
He said the procedure was to send in the "SWAT teams" for two or three weeks to work with the port. "We work with the customers to make sure cargo is there on time and it is possible to increase productivity up to 50 per cent. It benefits the whole market, but it benefits us the most, I hope."
Mr Wickmann said his priority was service reliability rather than schedule reliability. Frequency is very important, he said so when a ship is delayed a little there is another coming a few days later.
"I'll give you an example with, with Bangladesh which, which is, an issue. Ships waiting between three and six days in Bangladesh for all carriers at the moment and there are a few choices you can do when that happens," he said.
One might add a ship to a service, but this solved little because that ship is just there waiting so it means no increase in capacity and only represents additional cost.
"An alternative we use in Bangladesh is simply to increase our frequency, so we have now have five, four, sometimes five with, with extra loading services in to Bangladesh simply to make sure that even though one ship is waiting, there’s another one coming in very quickly and that gives more capacity," he said.
Taking the situation two years ago in Manila, its four terminals, north and south ports, Subic Bay and Batangas, were put into service and grew tremendously. "Within two weeks we went from two services to five in Batangas during the congestion in Manila because we were waiting 14 days outside the port to get in," he said.
"During the Manila situation [caused when municipalities within metro Manila enacted individual truck bans and throttled traffic to the port], we did had a lot of customers that load with MCC 100 per cent move away, but they were even more delayed with other carriers.
"It is the same thing for all shipping lines, and it is our collective responsibility together with the port and sometimes, even with the local authorities to set up systems so that it’s possible to handle increased growth," Mr Wickmann said.
Achieving low operating costs will be a permanent quest, he said - and the only way to survive in intra-Asia. "All I can say is that now having been in shipping for 26 years, the yield generated by containers has never been as bad as it is right now, which of course also means that any cost saving that we can generate, hopefully together with many of the the terminals, has much more effect now than it ever had before.
"It is much better for us to reduce costs five per cent than to get five per cent more cargo, because that five per cent more cargo is not generating much money, because there is no yield," said Mr Wickmann.
He had little faith the call for commoditisation and digitised shipping on the lips of the young American "disrupters" like Matthew Tillman CEO of Haven and Harry Sangree of CargoSphere, who came to conference like heralds of the New Economy some 20 years ago - and certainly not in intra-Asia where traditional methods run deep.
MCC was as online-ready as any, said Mr Wickmann, but when one a booking has been made, it takes less than one minute to place the same booking the following week, because all the data is still captured, he said.
"You just need to change the vessel that, that you want, so, so, so if you have regular bookings, it is really only the first time that you are keying into the system that it might take longer than using a carriers direct website, so feel free to try.
As far as shipping becoming commoditised, he said: "I think that might potentially be true in the long haul trades, but I don’t think it is the case in intra-Asia.
"For us, the softer values are still very, very important because you have to remember that almost any port pair, there are at least five, maybe 10 good shipping lines that can do exactly the same and the freight rates are more or less the same also.
"So, how do you distinguish yourself in an online offering - other than making things as easy as possible for the customer? I think the softer values of creating a great customer experience is, is the key. It’s extremely important in intra-Asia, and now it may be more important than ever.
Shipping is shipping, and then there’s congestion, there’s a typhoon and then there’s something else that, that happens. So, issues arise all the time, and I want to make absolutely sure that my team, every single person takes responsibility to fix it when it goes wrong.
One those those frequently asked questions put to intra-Asia practitioners since the Panama Canal expansion in last June, is the likely effect of old panamaxes cascading from trade from which they have been outmoded in to one where their smaller size seems to suit.
But MCC is not interested because one of the requirements of intra-Asia is frequency - "it’s direct services and flexibility. Panamax vessels don’t give any of that. A lot of the ports we deal with cannot take panamax vessels".
Taking smaller ports in Thailand and Japan, he said one cannot have a three-vessel service using panamaxes because there is not the time in port to do the moves to fill up the ship.
"So, to, to make use of, of the size of the ships, you would have to put in four ships, but the minute you do that that, your round trip goes from 21 to 28 days, that’s a 30 per cent increase of your total rotation time
"It’s not like adding a ship to an Asia-Europe service where 10 then becomes 11. Eleven vessels, that’s 10 per cent Asia-Europe, but intra-Asia it's 30 per cent. It doesn’t work. We tried it last year with NYK and we failed miserably."
Mr Wickmann granted where was some scope for panamax cascading on the North East Asia to Singapore/Malaysia run. But even here he anticipated difficulties when faced with rival 18,000-TEUers.
"Your slot cost is simply not good enough. The intra-Asia feeder lanes to and from Singapore, Tanjung Pelapas, also not possible from Jakarta, or from Leam Chabang because you don’t have the time, you can't do it in seven days.
"So it is not really suitable, and, and remember also that panamaxes don’t have a good fuel economy, there’s no incremental yield northbound. You might get more cargo southbound, but you’re not getting it northbound. And then you only get scale benefit if you’re full, only if you’re full, otherwise it makes no sense," he said. |
