Copyright © 2006 Howard Publications, Inc.
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Copyright © 2006 Howard Publications, Inc. |
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Related chart: Direct services from North America (requires Adobe Reader 3.0 or above)
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Transship or direct: a real choice? Shipping lines are expanding their use of transshipment for containerized freight. Do shippers have a say in the routing of their cargoes? by philip damas |
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The hub-and-spoke system has spread from the airline passenger industry to the cargo shipping business, and is becoming a predominant method of routing cargoes for most secondary ports and trade routes. For airline passengers, hub-and-spoke has become an unavoidable system, particularly in North America. Its ocean cargo equivalent — transshipment — is spreading on numerous trade routes, as the economics of larger containerships and asset-intensive liner networks favor limiting motherships calls to larger load-centers. Shippers moving goods to high-volume ports on main trade routes have the luxury of choosing from among numerous direct-service options. For destination or origin ports like Tokyo or Bremerhaven, shippers can pick from some 17 direct services, usually with weekly sailings. However, research using the global database ComPairData shows the number of direct services to or from minor ports — particularly those located away from the main shipping arteries and in developing countries — is poor or sometimes non-existent (see chart). For North American shippers, shipping to Chittagong, Bangladesh, or St. Petersburg, Russia, or Yangon, Myanmar, or Sihanoukville, Kampuchea, can only be done by transshipment or by overland connections, when using a liner service. Chittagong is the largest port of Bangladesh. St. Petersburg is the main Russian port on the Baltic Sea. Transshipment has long been a mainstay for most Asian ports because they’ve lacked suitable infrastructures for containerships. But transshipment has also transformed cargo and vessel routing in other regions, particularly the Mediterranean, the Caribbean, Latin America, the Mideast and eastern Africa, partly because of the development of new hubs in these regions. According to industry statistics, about 23 percent of all port container handling movements come from transshipment, compared to just 12 percent in 1980. Recent examples of new transshipment services include: • Atlantic Container Line’s new roll-on/roll-off service from U.S. and Canadian ports to 11 West African ports. • Australia-New Zealand Direct Line’s move into the South American market by starting a fortnightly transshipment service from Peru and Chile to Australasia. • Lykes Lines’ expansion of its transpacific services from North, Central and South America to and from ports in Thailand, Indonesia, Malaysia and Singapore, using feeder links. Another significant case was the transatlantic vessel-sharing agreement of Maersk Sealand, P&O Nedlloyd and Orient Overseas Container Line, which dropped Boston as a direct call last year. Those carriers now serve Boston by barge or via inland connections. The African trade to and from North America is now largely a transshipment trade. Both Delmas, a shipping line specialized in the African trades, and Maersk Sealand, ended their direct North America/West Africa liner services in 1999. Routing Options. Rey Ortiz, international procurement manager at du Pont, said his company prefers direct service to transshipment, when the former is available. "When we have a choice, the majority of times, we choose direct," he said. "Transshipment creates a potential for problems like missed feeders, particularly in winter. It can cause a week’s delay." Ortiz said du Pont is "prepared to pay some premium" for direct service. When no direct services exist, du Pont generally selects the transshipment service of "the better carriers with reliability." Ortiz said his company used to ship from the United States to ports in South America with the carrier transshipping cargoes in Rio Haina, Dominican Republic. But if something went wrong, delays could be extensive because the feeder connection in Rio Haina was only weekly. In other parts of the world, feeder services are offered twice-weekly, daily, or even several times a day. Last year, the big tire producer and exporter Michelin warned container shipping lines that a week’s delay caused by a missed feeder connection is not acceptable. "With larger and larger vessels, we see an increasing use of feeders," Brian Moulton, head of the ocean management committee of Michelin, told the Intermodal 2000 conference in Genoa, Italy. "This creates more opportunities for things going wrong." Michelin said that carriers must be responsive and flexible to meet shippers’ needs, including when problems are created by missed feeder connections. Ortiz said du Pont is aware that the shipping industry is increasingly moving towards larger containerships and transshipment. "We know that it is a coming trend. But we haven’t seen an increase in problems as of now." Reliability. Commenting on cargo routing criteria, Ortiz stressed that "the key is ability to meet the promised estimated time of arrival" — not how the cargo gets there. Ortiz has a "gut feel" that transshipment generally isn’t as good as direct to meet ETAs, but he said du Pont does not have specific comparative statistics about the schedule reliability of the two modes of routing. Organizations representing shippers, including the U.S. National Industrial Transportation League, the European Shippers’ Council, the Japan Shippers’ Council and the Hong Kong Shippers’ Council, have called for the development of industry standards to assess service performance aspects like schedule reliability. Chris Welsh, secretary general of the European Shippers Council, said he was not aware of any common standards in the industry on transshipment schedule reliability. In the Asia/North America and Asia/Europe trades, ocean carriers are bucking the trend towards more transshipment to serve certain ports. Asian ports have both improved their port infrastructures and shown considerable cargo volume growth — particularly in China. These changed provided the incentive several carriers needed to start adding direct services to ports such as Ningbo, Chiwan, Qingdao and Yantian. In January, United Alliance carriers Hanjin Shipping, Senator Lines and Cho Yang added a direct call at Yantian, in South China, to their joint all-water transpacific East Coast AWE-PDM container service. Cho Yang has since left the United Alliance. "As a consequence of the improved economic outlook in China, this new call to Yantian will enable Hanjin Shipping to offer broader scope of services," a spokesman for Hanjin said. The port of Hong Kong, once seen as the natural hub for cargoes moving to and from mainland China, has lost transshipment traffic volumes to local mainland ports. Meanwhile, niche carriers that provide direct service to minor ports using relatively small ships are finding it tough competing against the larger trans- shipment-based carriers. In March, North Pacific Steamship Corp., the Asia/Pacific Northwest niche carrier that called at the port of Everett, Wash. in North America and at the Japanese ports of Hitachinaka, Osaka, Kobe and Nagoya, stopped operating. North Pacific Steamship Corp. had operated its transpacific service since July 2000. ‘Vogue Of Megavessels.’ Ocean carriers say transshipment is an efficient way of serving certain ports, and provides many more port-to-port connections to shippers than direct services. Yet, a major European chemical shipper told the recent Containerization International conference in London that transshipment can be counter-productive. "Supposing that megavessels do save money at sea, all specialists tend to believe that such benefits will be lost ashore and in transshipment," said Philippe Rapatout, shipping management adviser to the Paris-based chemical group Atofina. "The final cost will be far higher when you move from a 4,000-TEU to a ‘Malaccamax’ container ship (of 18,000 TEUs), which is supposed to happen sooner or later." "How much extra time will it take to work these megaships" in port, he asked. "How long will it take to unload and evacuate more than 10,000 TEUs?" Rapatout drew an analogy between maritime container shipping and air freight. "You can send a parcel across the Atlantic in less than eight hours ... but, in large airports, you need eight days to retrieve your cargo." Rapatout estimates that transshipping a container costs about $600, including the feeder and handling costs. "Each container must be unloaded, stocked, moved to another quay, brought alongside the feeder and loaded." If they had the choice, shippers would prefer "less frequent services" as long as they were reliable and direct, the French shipper said. Rapatout criticized the "vogue of megavessels" and the standardization of transshipment services among carriers. "We use many, many lines. Whenever we can, we use direct carriers." Carriers’ Efficiency. "In our view, the debate over transshipment is over," Nicolas Sartini, senior vice president of CMA CGM, told the Containerization International conference. "This is now a full part of the carriers’ strategy." Sartini said shippers are expecting carriers to provide a service "from anywhere in the world to any destination" — and transshipment provides the additional connections not served by direct services. Asked about the comparative schedule reliability of the direct and transshipment modes, Sartini said, "on major corridors, there is no doubt that direct service is the best solution." CMA CGM, a shipping line that is present on most of the world’s larger trade routes, said it relies on the utilization of "several hubs located in interchange areas." These are Malta in the Mediterranean, Port Kelang in Asia and Kingston, Jamaica, in the Caribbean, and Khor Fakkan in the Mideast. "Subsidiary hubs" are also used. Sartini said critics of transshipment operations usually tell a shipper to remember "the way he felt (as an airline business passenger) the last time he missed a tight connection between two flights." But Sartini said CMA CGM is not suggesting doing the equivalent of flying a London-based passenger to New York via Reykjavik, because direct flights are better on this route. "We are addressing travelers flying from Marseilles to New York," he said. "This particular traveler has no option but to make a stopover somewhere and change plane." If there is competition between a faster direct service and a slower transshipment service, the freight rate for the transshipment route will have to be lower, he said. Yet, transshipment connections can be more frequent than direct ones, he said. Sartini said transshipment becomes economically more efficient when the economies of scale and savings on the itinerary deviation and port expenses of the mothership more than compensate for the transshipment and feeder expenses and the additional time spent by the mothership at the hubs. Hub Boom. Last year, a new container terminal on Panama’s Pacific Coast opened, bidding to become a major transshipment hub for Latin America and the Caribbean. Balboa Container Terminal is operated by Panama Ports Co., a subsidiary of the Hong Kong-based port group Hutchison Ports Holdings. Panama Ports has invested $120 million in the 600,000-TEUs-a-year terminal. "Balboa is one of the most strategic locations in Latin America providing transshipment services for the world’s major carriers operating on transpacific routes," a spokesman for the terminal operator said. The Hutchison group also runs the fast-growing transshipment hub of Freeport, in the Bahamas. The opening of the Panamanian hub allowed Maersk Sealand to convert its direct U.S. East Coast/Panama/West Coast of South America service into a transshipment service. Cargo is now relayed in Panama, with feeder ships sailing between Panama and the South American ports. Relatively few services to the Caribbean and the West Coast of South America now provide direct all-water connections, with the exception of services from Florida. Industry observers also question whether U.S. Northeast ports like New York will continue to attract vessels that serve the secondary trades, or whether the ships will now turn around in Panama, Freeport or a South Atlantic hub port. Last year, Manzanillo International Terminal, the container transshipment hub on the Atlantic coast of Panama, became the first Latin American terminal ever outside Puerto Rico to move more than one million TEUs in a year, handling 1.01 millions TEUs. Ocean carriers primarily use Manzanillo to move containers between Latin American-based feeders and larger transatlantic or transpacific vessels going through the Panama Canal. Transshipment hubs are where the big port cargo volumes are going. Maersk Sealand aims to move 10 million TEUs a year in three years’ time at its new hub of the Port of Tanjung Pelepas in Malaysia, according to Asian reports. Last year, Maersk Sealand said it has bought a 30-percent stake in the fledgling Malaysian port and decided to switch its Southeast Asian transshipment hub from Singapore to the Port of Tanjung Pelepas. The development of container transshipment hubs is arguably one of the fastest-growing area of the container shipping industry, with the associated changes in routing patterns that this implies for shippers. The new facilities of Port of Tanjung Pelepas and Balboa opened last year. The greenfield hubs of Aden, in Yemen, and Salalah, in Oman, started operations in 1999. Freeport kicked off in 1997. Gioia Tauro, the southern Italian hub, and Panama’s Manzanillo terminal opened in 1995. By the end of this year, a new 1.7-million-TEU container terminal hub located at the Mediterranean end of the Suez Canal is scheduled to open. Suez Canal Container Terminal will be majority-owned by an A.P. Moller/ECT-Rotterdam joint venture. Other key shareholders are Egyptian Investment and Finance Group (15 percent), Kato Investments (6 percent), the Suez Canal Authority (5 percent) and National Bank of Egypt (5 percent). Pros And Cons. "We see legitimate value in both models," said a spokesman for BDP, the forwarding and logistics company, commenting on the merits of direct and transshipment routes. "Our ocean transportation service company, BDP Transport, enjoys the benefit of having multiple service options which it, in turn, is able to pass along to customers," said Arnie Bornstein, director of marketing and corporate communications at BDP International, based in Philadelphia, Pa. "The availability of direct shipping and transshipment products gives us the latitude to offer different service products to customers based on their needs," Bornstein said. Asked about the increasing use of transshipment and larger ships, Bornstein said "Our experience indicates that shippers and receivers care more about service quality than the specifics of equipment. What matters most is meeting the shipper’s expectations for safe, timely and consistent delivery." Subjecting shippers "to the minutiae of logistics or what kind of equipment one selects to get a shipment to and from a destination" is less important, he said. "That said, shippers are seeing higher consistency of service in the current environment," he added. "Larger, faster ships are moving in dedicated schedules to distribution hubs at major port locations, with dedicated equipment handling the feeder lanes in dedicated rotations. Also, consolidation within the ocean transportation sector is having a favorable impact, reducing vessel redundancy and enabling carriers to place equipment where the business volumes exist." It is generally accepted that carriers that operate and manage their container transshipment hubs and their dedicated feeder services are able to deliver a higher level of schedule reliability. Information Transparency. With or without transshipment, shippers are asking for clear information about the shipment of their cargoes. "Should something unexpected happen (during the transshipment), we must inform receivers quickly," Rapatout said. Maersk Sealand, OOCL and other carriers have developed track-and-trace systems that enable shippers to see whether cargoes in transit are expected to arrive on time or were delayed because of missed feeder connections. Sartini said CMA CGM has opened its system to shippers, providing transparent information, whether good or bad. Maersk Sealand’s track-and-trace tool for shippers "mirrors our existing (internal) computer system," said Tom Boyd, spokesman for Maersk Inc. He said shippers normally are told the routing pattern of their cargoes before shipments take place. "They have to know if it’s hub-and-spoke or direct," Boyd said. "There are no surprises." |
Brian Mouton
Philippe Rapatout
Rey Ortiz
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"With
larger and larger vessels, we see an increase in the use of feeders. This
creates more opportunity for things going wrong."
"Supposing
that megavessels do save money at sea, all specialists tend to believe
that such benefits will be lost ashore and in transshipment."
"When
we have a choice, the majority of times, we choose direct. Transshipment
creates a potential for problems like missed feeders, particularly in
winter. It can cause a week’s delay."