By Brian Dunn
The geo-economic landscape is changing with new trade routes and the threat of renegotiations of trade agreements. Companies will be forced to rethink their business and logistics models, according to a trade industry expert.
For example, dry bulk/agri exports by rail to Mexico could be replaced by trade with other South American countries which could benefit the shipping industry, suggested Henriette Van Niekerk, Director & Global Head of Dry Bulk Analysis at London-based shipbroker Clarksons Platou. And with the U.S. slapping a 400 per cent tariff on Chinese steel imports and 200 per cent on Japanese steel, that steel could be replaced by steel imports from Russia or Brazil, Ms. Van Niekerk said at the Shipping Federation of Canada’s 15th Annual Conference in Montreal.
On the other side of the world, China has committed to spending U.S. $1.4 trillion in over 65 countries on rail, port, highway and energy infrastructure through its “One Belt, One Road” initiative, or twelve times more than what was spent to rebuild Europe after the Second World War under the U.S. Marshall Plan. The initiative is seen as a way to strengthen China’s trade and political partnerships when the Trump Administration is preaching trade protectionism.
On the shipping side, the dry bulk and LNG sectors are in recovery mode as world GDP growth is starting to pick up, noted Ms. Van Niekerk. The dry bulk market which was in a prolonged period of slow growth between 1990-1999, is growing again. “And with China putting a lot of money into Southeast Asia, surely it will spur economic growth, so I’m optimistic for world economic growth as well. Per capita consumption of energy and steel have not peaked in China, whereas they have in Japan.”
However, Japanese shipyards are fully booked until 2019, even though the orderbook as a percentage of the world’s total shipping fleet is at a historical low, as weak earnings reduced ordering to a trickle in 2016, with some yards forced to close. More modern, economically friendly and energy efficient vessels are pushing older tonnage out of the market and the majority of shipping markets are in the process of “rebalancing.”
Among the top thirty importers in North America, Canadian Tire is ranked number 22, according to Gary Fast, the company’s Associate Vice-President, International Transportation Operations. And 90 per cent of Canadians live within 15 minutes of one of its stores, he said during a panel discussion on Bulk and Container Perspectives. Forty-two per cent of the retailer’s cubic volume comes from outside North America which is important to develop a strong private label program to differentiate itself from competitors, and provide it with a cost advantage. “The outlook for consumer imports from Asia and China, particularly in hard goods, still remains relevant despite growing wage increases. Cost is being replaced by speed and flexibility of delivery. We might cut ocean deliveries if air can go directly from factory to customer. In the last two years, rates have been volatile and there are fewer choices with (shipping) alliances tightening up. We have to be creative in choosing shipping partners, while demand for air freight is on the rise.” This year, Montreal was added to the company’s transloading operations, and will account for five per cent of its import volume, versus 85 per cent for Vancouver (down from 90 per cent) and 10 per cent for Halifax.
The consolidation of shipping lines is expected to continue into 2018 as freight rates remain at unsustainable levels, noted Mark Szakonyi, Executive Editor, The Journal of Commerce, IHS Maritime & Trade. There is more capacity discipline, but the industry is still facing about seven per cent of excess capacity, he added. The three largest shipping alliances will play a major role in how the spot market will shape up and spot rates should move according to normal seasonal trends. Service contracts are higher than last year, but barely at compensatory levels. “The Hanjin (Shipping Co.) collapse is a wakeup call that you can’t always depend on government bailouts,” Mr. Szakonyi added.
Some positive signs on the Trans-Pacific market include higher spot and charter rates, higher scrapping rates and improved ordering activity. And while new orders of container ships were “way down” in 2016, shipping lines are still scheduled to take possession of 150 vessels of 10,000-22,000 TEUs over the next two years.
NVOCCs (non-vessel-operating common carriers) such as forwarders and consolidators are handling a larger share of U.S. imports from Asia, accounting for 43 per cent of total imports last year, up from 29 per cent in 2006. And since NVOCCs have contracts with most of the carriers, they are in a better position to deliver space to customers than individual carriers during peak periods.
The market share at Canadian ports is growing as a hedge against congestion at U.S. ports, added Mr. Szakonyi. Vancouver and Prince Rupert now account for a combined 4.4 per cent share of U.S. imports from Asia. But the ports and railroads need to keep service levels up to accommodate new U.S. business. Container shipping is expected to grow 3-4 per cent annually and Canadian ports are aggressively competing for this cargo, said Mr. Szakonyi.
With the world’s population expected to reach 8.5 billion by 2030, the demand for potash will continue to flourish, since 95 per cent of potash is used for fertilizer, according to Keith Ball, Director, Ocean Transportation and Supply Chain, Canpotex Shipping Services. A huge driver of potash consumption is the world’s consumption of grains and oilseeds, led by China, Brazil and India. Brazil consumed 700,000 tonnes of potash in 2000. However, having grown to be the largest soybean exporter in the world, its consumption of potash has increased to 2.5 million tonnes annually, mostly shipped in bulk, but some container shipments have been recently added. He indicated that his company’s principal concern is the potential insolvency of a shipowner, resulting in not getting product to market in a timely fashion.
The main concern on the bunker side is the impact of new bunker regulations and the new global sulphur cap taking effect in 2020. In 2015, OW Bunker, one of the world’s largest bunker fuel supplier and trader, filed for bankruptcy and Canpotex was involved in litigation and ships arrest. As a result, the company spreads its risk more diversely with 50 per cent time charters and 50 per cent on a voyage basis. “After a weak start in 2017, there is a steady fertilizer demand and we expect this will be our third consecutive year of positive growth.”
Introduced by Shipping Federation President Mike Broad, the luncheon keynote speaker was former Chicago Blackhawks great Dennis Hull who went on to regale his audience with humorous anecdotes about his illustrious career.