The shipping news: It’s not good
An international expert is reluctant to suggest state intervention for our shipping problems, but can’t think of much else. Dileepa Fonseka reports.
The question of New Zealand and what it should do about its steadily-worsening shipping issues tests Alan Murphy’s libertarian philosophy.
‘‘I would traditionally be the last person to suggest state intervention and setting up a state shipping line or anything like that, but what are some cargo owners doing? Well, some of them are just going out and renting vessels.’’
Murphy is chief executive of international shipping consultancy Sea Intelligence. Exporters in New Zealand keep close tabs on his company’s global freight measures and analysis.
They are probably following his reports more keenly now that ships are starting to skip ports south of Auckland and leaving exporters holding warehouses of stock.
Ships are docking, offloading imports, putting empty containers onto their ships and then taking these empty containers back up to service the lucrative transPacific routes between Asia and the United States where there is currently a major container shortage.
It is now at the stage where shipping firms are lumping on surcharges, in part, to discourage people from putting full containers onto their ships, according to Murphy.
Shipping firms would make more money if you didn’t ship with them, and they were able to put an empty container onto a ship instead.
Getting exports out on these ships might not end the worries of exporters. Some shippers received an alert this week warning them that all the ‘‘reefer’’ plugs at the troubled Chinese container terminal of Yantian were full.
Reefer is shipping terminology for the refrigerated containers our agricultural exports go out on. If all the plugs are taken then no reefer container can be offloaded at the terminal and stored as it waits to be shipped onwards to another location.
Murphy says if we turn the screw too tightly on shipping lines and start putting too many conditions on their operations here, then they could just leave.
Equally, if shipping lines decided one day to just focus their resources on their most profitable routes then we could simply lose our access to direct shipping links despite having done nothing wrong. Even if this crisis sorts itself out, there could always be future disruptions.
‘‘God, it sounds like I’m advocating for New Zealand State [shipping] Lines . . . but I can see why that would be reasonable too in the current situation,’’ he says.
‘‘I really want to say ‘no, never consider it’, but I can’t honestly say that that is not a reasonable position for a small country like New Zealand.’’
The isolated position New Zealand finds itself when it comes to shipping was also noted in KPMG’s Agribusiness Agenda report, which notes the Oceanic region accounts for only 2 per cent of global sea traffic so has limited bargaining power with shipping lines. This will remain true well after the Covid-19 pandemic is over.
‘‘New Zealand will need to be a value market for the shipping lines, which means pricing will need to be at a level that will provide enough profitability to retain services,’’ the report says.
Murphy says the problem right now is Yantian, the major Chinese shipping container terminal, which is located in a part of China currently experiencing a Covid-19 outbreak. The ensuing lockdown and containment measures at the terminal have now caused more disruption than when the Ever Given blocked off the Suez Canal.
Normally the Ever Given or even Yantian wouldn’t pose a large problem to global shipping, but the system has no spare capacity to deal with such shocks.
Murphy doesn’t just trace these problems back to the outbreak of Covid-19 at the beginning of last year. He sees it as part of a much wider story that stretches all the way back to 2008.
‘‘Why are we here? Number one, pandemic, number two: the Americans.’’
Most will remember 2008 as the year the global financial crisis hit, which meant one year later the volume of containers being shipped globally dipped for the first time in the entire 60-year history of container shipping to that point.
Murphy says the contraction was large, 10 per cent. It was also prolonged.
Shipping lines were caught short of cash, so they simply cut down on costs. One of the easiest ways to do this was simply to stop transporting empty containers, which created an imbalance of containers at different ports.
It led to an ‘‘incredible year’’ for shipping lines in 2010, similar to today, after container volumes dropped in 2009 and had to be rebalanced through 2010.
‘‘So 2010 actually was the best year in container shipping in a decade, compared to the following decade, because there were no empty containers in Asia.
‘‘Basically the shipping lines had to say ‘OK who is willing to pay for an empty container? We’ve got plenty of space on the vessels but we simply, literally, don’t have any containers’. So people had to pay surcharges.’’
So the shipping lines reinvested in mega vessels. But not only did they take longer to load and unload, their huge size meant they could only dock at particular ports.
The whole shipping industry had also created a massive amount of capacity for containers, and freight rates plummeted.
Shipping lines have since held back from ordering more vessels, but this wasn’t enough to stop the adjustment pain from this huge oversupply of container space.
Over the past four years, nine of the 20 largest shipping lines have disappeared. One went bankrupt and the rest merged. Meaning the entire shipping system had no spare capacity going into the pandemic.
As the crisis hit and countries went into lockdown, container volumes plummeted and containers stopped being moved around, similar to what happened in 2009.
‘‘Backhaul’’, as the shipping industry calls it, refers to the lower-value trade you do while you are getting your ships and containers into the right position after shipping the highest-value goods.
This trade melted away. Overall container volumes shrank slightly through 2020, but Murphy says the total hides a significant statistic. By the end of the year demand from the US for goods was ramping up.
One shipping route, Asia to the US, started experiencing a major spike in demand. The problem was ports in the US are historically inefficient.
Murphy says that in Rotterdam it takes eight hours to load and unload a vessel that Los Angeles port workers will take five days to turn around.
‘‘The productivity is incredibly poor. Even before half of all the stevedores got the coronavirus or were quarantined.
‘‘And what we saw was a massive buildup of vessels waiting to get in. Waiting two weeks to get in on the US west coast.’’
This meant shipping firms now needed
‘‘Why are we here? Number one, pandemic, number two: the Americans.’’ Alan Murphy Chief executive, Sea Intelligence
more vessels to put on a weekly service.
‘‘What happened is that the US west coast started soaking up all the available vessels. On top of that, all of the containers got stuck and could not be evacuated.’’
Which caused flow-on effects to the rest of the world, because there were now no spare ships, and empty containers were stuck in the US when they really needed to be in Asia or elsewhere.
New Zealand, like others, is now competing in a major international market for shipping space and containers.
‘‘Before this became a shortage of containers whatever happened in trans-Pacific wouldn’t have been a problem for New Zealand, but because it’s the shortage of equipment that’s the primary driver here you’re competing against the rest of the world.
‘‘And if somebody else is willing to pay US$20,000 for a 40-foot container, that’s the price you’re now competing against.’’
The only real solution Murphy can suggest is for New Zealand to somehow outbid everybody else looking for extra shipping capacity.
Shipping lines will also probably honour long-standing agreements and relationships, because they do think in the long term and will realise the container trade can easily drop away with little notice.
Transport Minister Michael Wood says the Government has facilitated Ports of Auckland’s application to bring in more skilled workers, it has also added more trains to an Auckland to Tauranga rail service, and introduced a new booking system to improve the utilisation of trains.
Wood also says new shipping capacity has been added in the form of Maersk’s Sirius Star service, and the Government has provided businesses access to experts on supply chains.
Then there are the direct cash injections into airfreight, which Wood says has funded 7000 flights carrying more than 136,000 tonnes of airfreight valued at about $10b.
‘‘We are not considering a similar scheme for shipping lines. International shipping lines tell me they remain committed to servicing New Zealand businesses in difficult global circumstances.’’
He was monitoring the situation, and keeping an open mind.
The whole crisis has turned Murphy into something of a mini-celebrity. He has been in the New York Times seven times in the last six months.
He defends the shipping lines and the shipping industry, and gets a little annoyed when people start insisting the industry should have had the extra capacity sitting around waiting for a rare event like the one we are going through right now. Which is something a Danish journalist apparently tried to do shortly before Murphy spoke to the Sunday StarTimes.
‘‘Suddenly there’s a focus on what we do in this industry. And I get why, because we are affecting the whole world now.’’