Caribbean hubs play role as ocean box supplants refrigerated vessel for transporting perishables.
New ocean transportation trends and infrastructure, especially transshipment and the expansion of the Panama Canal, will enable the refrigerated container sector to continue its rapid growth on Latin American trade lanes, Robert West, principle strategist for ports and marine terminals at Australian engineering services firm WorleyParsons, said at a recent port industry conference.
As, refrigerated boxes become the preferred ocean method of shipping perishables, their utilization becomes a function of overall change in the container industry, which is currently marked by the rapid ordering and deployment of ultra-large vessels with capacities ranging from 10,000 to 18,000 TEUs. Analysts widely expect that when Panama completes a third set of locks allowing the passage of vessels up to 14,000 TEUs, almost triple the current size, on all-water routes between the east and west coasts of North and South America, as well as Asia, large carriers will use strategic ports in the Caribbean as hubs where the big ships can make one stop for discharge and collection of cargo. That will allow them to maximize efficiency by plying the main trunk routes while smaller vessels shuttle to multiple mainland ports.
Having multiple-destination cargo is key to filling the big ships and covering the massive operating costs, and transshipment makes that possible.
Panama is in a “dominant position” versus other Caribbean ports to serve the reefer industry for transshipment, West said in Tampa, Fla. Between 10 to 12 percent of container traffic that moves through the canal today is refrigerated and that ration is growing.
The four major container ports in Panama combined have more than 3,050 electrical connections in their yards to run reefer boxes – including 1,600 at Manzanillo International Terminal on the Atlantic entrance to the canal, West said. That compares to 1,990 reefer plugs in the ports of Kingston, Jamaica; Caucedo, Dominican Republic; Freeport, Bahamas; and Cartagena, Colombia.
Bulk reefer vessels are a dying breed as shippers and carriers have converted more cargo to the container mode in recent years, maritime industry experts say. Despite recent market conditions that enabled reefer vessel operators to fill ships and command high rates, container carriers continue to take market share in the refrigerated sector.
Combined seaport transport of fresh produce in conventional reefer ships and in refrigerated boxes reached an estimated 95 million tons last year, according to a November market analysis conducted by Dynamar. The volume is equivalent to 3.1 million 40-foot full high-cube refrigerated containers, but nonetheless only accounts for 2.5 percent of world seaborne trade of all dry cargoes.
Reefer container capacity is almost 900 million cubic feet, 4.5 times the amount of space in vessels with giant refrigerated holds.
Temperature-controlled containers make up more than 92 percent of the overall reefer tonnage and will rise to more than 94 percent in the next few years, London-based maritime consultant Drewry said in its forecast of reefer shipping published in September.
In the first half of 2013, charter rates for smaller refrigerated vessels reached 90 cents per cubic foot, the highest level since 2008 and a 65 percent hike from the prior year, the Dynamar report said. Higher rates were possible because of short supply – more than 230 vessels have been scrapped and fewer than 20 new vessels have been built in the last five years – and greater demand as shippers sought an alternative to container line rate increases of up to $1,500 per 40-foot box.
Refrigerated cargo is generally of higher value and is increasingly sought by carriers as a premium product.
However, the conventional operators themselves also profited from the higher rates for the small volumes of reefer boxes they carry as well. Dynamar estimated the carriers received an additional $96 million in revenue by moving 190,000 boxes, based on an average of 64 plugs for refrigerated containers, six trips per year and an occupancy rate of 70 percent.
Fruit suppliers and other specialist operators of conventional reefer are steadily exiting the business, in part because there is more competition in the space.
The top 10 pure reefer operators, with 257 vessels, control 55 percent of the 208.7 million cubic feet of global available capacity compared to the top five liner shipping companies that have a 70 percent market share. Seatrade Reefer Chartering is the largest conventional reefer vessel operator, followed by NYKCool.
Last year, Isabella Shipping switched its Colombia/Costa Rica-U.S. Gulf service to containers; Chiquita terminated its own Great White Fleet container service from Ecuador/Guatemala to Port Hueneme, Calif., in favor of slots on the CCNI/CSAV/Hamburg Süd box service; and Cosiarma ended an intra-Mediterranean perishables services operated with two “hybrid” conventional reefer ships.
In the prior two years, Chiquita replaced three conventional reefer vessels on the Guayaquil-Port Hueneme route with container tonnage; Geest Fyffes substituted a dedicated Central America-Europe reefer service with slots on a Maersk Line container service; and Dole redelivered five chartered conventional reefer ships to take slots from container carrier Mediterranean Shipping Co.
According to Dynamar, Chiquita claims to have saved $12 million a year by its conversion and Fyffes said it achieved significant cost savings and improved efficiency.
Conventional reefer capacity is expected to be cut in half to 100 million cubic feet and 320 vessels by 2023, the Dutch maritime analytics and consulting firm said.
However, a consortium called Reefer Intel has presented a design for a new conventional reefer-ship type based on roll-on/roll-off vessels it says has a 40 percent lower unit cost and 45 percent more capacity than a traditional reefer vessel, and can discharge in only 12 hours. Whether it gets built remains an open question, Dynamar said.
And Dole Fresh Food has ordered three full-reefer capacity containerships of 1,500 TEUs with 770 plugs, costing $55 million apiece, with delivery expected in early 2016.
Dynamar said that pure reefer operators could achieve higher profits than container carriers over the short term if the drawdown in supply helps rates remain elevated.
One of the ripple effects of large produce distributors such as Dole switching to containers is that small shippers looking for container capacity are sometimes displaced on a seasonal basis, Carlos Fernandez, director of Latin America ocean services for C.H. Robinson, said at the Tampa conference. The large sourcing and logistics company projects a possible shortfall in reefer capacity in 2015 and 2016, because demand continues to grow while conventional vessels disappear, he said.
Meanwhile, container carriers are making it easier for growers and distributors to switch by adding more reefer capacity on the South-North routes in which fresh produce is heavily traded.
There are 780 containerships on the South-North routes, an increase of 46 ships since last year, with an average capacity of 4,100 TEUs, up from 3,800 TEUs, Dynamar said. Combined, the vessels offer 62,000 reefer plugs per week.
Latin America is the largest South-North trade lane, with 29 carriers providing 62 services using 454 ships with an average combined weekly capacity of 266,600 TEUs.
Hamburg Süd operates ships with the largest amount of reefer capacity. The 9,800-TEU vessels are deployed on the route from South America’s east coast to the Far East and fitted with no less than 2,100 plugs. The carrier plans to receive delivery in less than two years of its first (of three) new 10,500-TEU vessels, also with 2,100 plugs, which it will deploy on the South America trade lane.
Most of the largest container vessels operate on the east-west trade routes where there is less trade in perishable commodities, so the number of on-board reefer connections typically doesn’t exceed 900 plugs on average, Dynamar said.
But three 18,000-TEU vessels recently ordered by CMA CGM will be fitted with 1,400 plugs each, it reported.
The size of the box fleet is more important for determining capacity than reefer plugs, the report noted.
“The number of installed plugs is increasing at a much faster pace than the number of reefer containers. For every 40-foot reefer there are nowadays more than three plugs available and the number is growing. As a rule of thumb, for every reefer container on board, there will be another unit ashore so that the actual availability will in practice stand at seven plugs per 40-foot reefer,” with boxes making an average of five roundtrips per year.
Last year, Maersk Line, which maintains about a quarter of the global market share of seaborne reefer containers, opted not to invest in new refrigerated container units while significantly raising rates as part of an effort to increase profitability in the market.
Dynamar estimated that about 200,000 reefer TEUs were manufactured in 2013 even without orders from Maersk, bringing the total refrigerated container fleet to 2.3 million TEUs.
West pointed to several developments that bode well for refrigerated container business in Latin America.
Nicaragua, he said, has begun to export red snapper, grouper, shrimp and spiny lobster to the United States and Mexico from two tiny ports on the Atlantic that lack quality infrastructure. Last year, it exported 10,000 kilos of fresh and frozen seafood to those two markets. West said he could envision a new reefer service that calls Nicaragua and Belize (another active seafood exporter), before heading to Miami or another port in Florida.
A $1 billion container terminal under development and privately funded by APM Terminals in Moín, Costa Rica, also offers the opportunity to move more perishable cargo. Costa Rica is the world’s largest exporter of pineapples and the third largest exporter of bananas, including some that are trucked in from Nicaragua.
The Moín Container Terminal, to be built on reclaimed land in the sea, is expected to handle 1.2 million TEUs in its first year of operation in 2015, because it will absorb all the container traffic (900,000 TEUs) from the neighboring port of Limon, which lacks modern technology such as container cranes, and add some new business. Automation is designed to speed up cargo handling and get fresher produce to consumers in overseas markets.
Moín is only designed to move Costa Rican cargo, but West said it could become a sub-hub for reefer transshipment in the region.