Pump price for liner carriers
Every once in a while, shippers get a detailed view into an area that’s typically opaque: carrier operating costs.
One such occasion popped up in late June when Juergen Pump, senior vice president at Hamburg Süd North America, described for attendees of the Agriculture Transportation Coalition’s annual meeting the costs of a single sailing on a North America/Oceania service.
Ag exporters in the crowd learned, for example, that a chartered 2,700-TEU ship plying that trade takes on roughly $2 million worth of fuel (2,900 tons at around $700 per ton) on the U.S. West Coast. Imagine filling your car’s tank with $2 million of fuel.
“And fuel suppliers don’t take credit card — cash only,” Pump quipped.
Much of the fuel is to power the ship across the Pacific to Australian and New Zealand ports, but some of it is reserved for the return leg, with Hamburg Süd loathe to pay the higher bunker costs in Oceania for any more fuel than it absolutely needs. The vessel takes less than one-third of the oil in Melbourne than it does in Long Beach, Calif.
Chartering-in costs are $21,000 per day based on a long-term charter, though at present a ship that size could be had for less than half the price.
The vessel nominally holds 2,700 TEUs, but at 14 tons per slot realistically has capacity for around 2,100 TEUs, Pump said. The 56-day roundtrip service incorporates 11 port calls (five on the west coast of North America) and covers 18,400 miles.
Aside from fuel and chartering costs, there are port fees that add another $235,000 to Hamburg Süd’s bill per sailing. Interestingly, port costs in Oakland are higher than in other U.S. ports called on the service — nearly $21,000 compared to nearly $16,000 in Seattle and $12,600 in Long Beach.
Perhaps it’s a function of Oakland’s lack of a true geographic competitor that keeps its costs higher. But the port costs in Vancouver — at $38,000 — trump them all. Costs at Australian ports run in the $30,000 range.
Aside from the anticipated operating costs, there are factors like labor strikes, stormy weather, and other congestion delays that add costs. Pump said a strike on the docks in Adelaide might force the line to bypass its call there, unload Adelaide cargo in Melbourne and face extra costs in trucking the cargo over land to Adelaide. Such a disruption could cost about $20,000.
A storm in the South Pacific may delay the vessel’s arrival in Papeete, Tahiti on the return to North America. Hamburg Süd then has to decide whether it’s worth waiting an extra day in Papeete to unload cargo bound for that destination, at the risk of missing its berthing window on the West Coast. If the Tahitian port is bypassed, the carrier must then transship the Tahitian cargo back to Papeete, also an expensive proposition.
By the time the ship arrives back in Oakland, Calif., 56 days later, it has incurred $4.1 million in operating costs, $2.7 million of which are attributable to fuel, and $1.2 million of which goes to charter costs.
That fuel on the sailing accounts for about two-thirds of operating costs and jives with what carriers have been saying as bunker prices topped $700 per ton earlier this year — the price of fuel has forever changed the cost structure for container lines. Bunker prices have dipped back down to the $600 range, but the threat of a price rise perpetually looms, with the factors behind those increases outside the control of carriers, their customers, or other partners.
With Hamburg Süd’s service offered weekly via eight vessels, total fixed costs for the year reach more than $213 million, Pump said. Another estimated $194 million in annual costs come from variable costs, like cargo handling, inland container moves, and equipment costs.
That adds up to $407 million per year for this service alone. As Pump’s presentation asked, “So you want to be a ship owner?”
Rate hikes for 2013? Last month, we reported on the gap developing between transpacific rates paid by beneficial cargo owners and non-vessel-operating common carriers.
Some NVOs suggested the higher rates they were being forced to pay were a sign that carriers were trying to put some of them out of business, or at a minimum trying to win back market share that NVOs have gained over the past decade.
But maybe there’s a simpler, more strategic reason for carriers enforcing such high rates for NVOs. Maybe carriers are simply trying to establish a new psychological benchmark for next year.
If you talk to carriers, some realize they need NVOs now more than ever, while others still bristle with that old-fashioned “they don’t even run ships” mentality. But in an environment where carriers are being forced to cut costs, including downsizing staffs, doesn’t it make sense to outsource some of the sales functions to NVOs, who can focus on customer service without those pesky ships to operate?
Yes, there’s the reality that NVOs play a margin game, ostensibly stripping carriers of some of the profit they could be earning by selling the slots themselves. But it takes money and time to sell, and carriers often have to cut their rates to less than desirable levels to win the cargo of high-volume shippers, stripping their margins without NVOs even being involved.
If the goal of lines is to hit NVOs with higher rates to set the stage for next year, that makes some sense, even if it’s not very palatable for NVOs and shippers. Spot rates, normally secured by NVOs and now transparent via public indexes, have fueled the downward spiral in rates. Carriers could be testing whether they can lead an upward spiral as well.