Improving efficiency in global trade means bigger more efficient ships and aircraft. Alex Whiteman looks at how operators are boosting efficiency and cutting costs.
As consumer behaviour and global trade changes – along with the age old necessity to ship out dead wood – carriers are changing the make up of their fleets. In June, Maersk signed a $1.8bn (£1.15bn) building contract with Daewoo Shipbuilding & Marine Engineering for 11 second generation Triple-E container vessels.
The agreement has provided for an optional six further vessels. Each vessel has capacity of 19,630 TEU, a length of 400m, width of 58.6m and a 16.5m draft.
Currently the largest container ship in service is the 19,224 TEU MSC Oscar, which MSC brought into operation earlier this year. The vessel, which cost $140m, is 395m long, 59m wide, with a draft of 16m.
The 2M vessel sharing agreement between Maersk and MSC on the Asia-Europe, Transatlantic and Transpacific trades came into operation at the start of 2015, following approval by the US Federal Maritime Commission last year. In total, the VSA has an estimated capacity of 2.1 million TEUs with some 185 vessels. Maersk Line is contributing around 55 per cent of the total capacity.
Angus Hind, air and sea director at Europa, says this is a sign of the times: “Vessels continue to grow: 17,000 TEU, 20,000 TEU, and 24,000 TEU. However, carriers are also reducing their number of sailings, as rates are declining.”
Maersk’s order represents its second building order of the year – the first was for seven 3,600 TEU feeder vessels. It represents part of the liner’s five year plan to invest $15bn in operations.
Søren Toft, COO for Maersk Line, says: “I am very happy with this order. These vessels will help us stay competitive in the Asia – Europe trade and will be key in our strategy to grow with the market. It is the second order this year and we expect to order more vessels, which we can add to our fleet from 2017 onwards.”
The new vessels, which will become the largest in Maersk Line’s fleet, are intended for the Asia-Europe service. The vessels will replace smaller, less efficient vessels.
“It’s not only shipping lines that are changing the make-up of their fleets,” says Hind. “Air freight operators are bringing in more fuel efficient aircraft, and in some cases reducing their full freighter usage as cargo capacity in the belly hold of passenger aircraft increases.”
Doug Brittin, secretary general of The International Air Cargo Association (TIACA) says that the increased cargo capacity of belly holds in modern passenger aircraft has brought a big boost to passenger airlines looking to carry cargo.
“This has impacted the freighter market,” says Brittin. “Full freighters will exist, but I do not see there being a huge uptake – except, perhaps, if express markets continue to grow with increased consumer demand.”
That said, the Freighter Forecast 2015 from the Air Cargo Management Group, predicts that 125 new freighters per year will be required to meet growth and replacement needs over the next 20 years. This is a notable increase on the 95 per annum required between 1990 and 2014. In a worst case scenario, one in which the baseline growth of 4.5 per cent in FTKs, was nullified, the market would still require 60 freighters per annum to offset the retirement of existing aircraft. So, with an expected 65 aircraft per annum just to fulfil growth needs, this doesn’t suggest freighter fleets will be waning anytime soon.
David Lara, Ceva Logistics’ vice president of global air network management, says the gradual disappearance of freighter aircraft is well-documented. “90 per cent of all air freight carried on freighters can actually be carried in passenger aircraft bellies, so with the increase in capacity provided, particularly by Boeing 777-300s, there is more tendency to use them with the benefit of their greater frequency,” says Lara. “Currently low oil prices have given old, fuel-inefficient freighters a reprieve – but it’s only temporary.”
Bill Smetham, general manager of air and ocean freight at GBA services, points out that aircraft like the B777-8X are a game changer: “They’re 12 per cent more fuel efficient on long-haul routes, and five per cent on average across all route types,” he says. “In addition, the range on these aircraft has increased by 21 per cent to 17,000km. Freighters are still part of the market but the business model in undoubtedly changing.”
In terms of ocean freight, there has been an inability to match availability with requirements. “There is also the issue of market dominance in terms of fleet size from the two big boys,” he says. “APM Maersk and MSC between them hold 30 per cent of TEU capacity in Top 100.”
There is also a change of direction, albeit somewhat modest, in the flow of freight around the globe. For some time China has been the workhouse of the globe, and that looks unlikely to change to any great degree in the near future. However, operators have begun expanding new routes, and are seeing existing routes perform to a greater strength.
Smetham says that despite the stalling growth in Europe, exports out of the United Kingdom are performing strongly.
“UK exports are going extremely well,” says Smetham. “Fashion and automotive industries are up – the UK of course remains something of a net importer and this looks unlikely to change.
“However, the origin of these imports has shifted somewhat. Namely we are seeing more and more food coming from the near continent, and to some extent retail imports are picking up.”
Hind says that some of Europa’s customers are using suppliers in places like Bangladesh, Cambodia, India and Vietnam.
“Transit times from these destinations, even India, are only marginally different to those out of China,” say Hind. “So much of this is down to cost. What we are seeing is more customers tender exports on a case-by-case business. We have also seen something of an upturn in exports out of North America.”
Brittin says that it is no much trade lanes that are changing, at least from an air freight perspective, but rather volumes and modes: “We are still, to some extent, recovering from 2008 when things fell off a cliff,” he says. “When there is an event of that magnitude, supply chains seek more cost-effective solutions, but once there has been this sea change it is difficult to bring things back from that front.
“There’s been a recent mini-boom in near shoring, and we have seen percentage gains in places such as Vietnam, but the percentages we are talking about are so small that they’re unlikely to impact on China – to put it bluntly, I see no major signs of a shift away from China as the export power-house.”
Ceva has recognised a moderate modal shift from air to ocean in recent months.
“The slowdown in West Coast US ports caused shipping lines to cancel or divert services and as the warehouses overflowed, some shippers and exporters from the USA were forced to fly even low-value goods to Asia,” says Lara.
“The reverse was true for Asia for, most notably, automotive parts into the US and although there were some benefits to forwarders as the dispute continued, the overall trend still seems to be for shippers to opt for surface transport where practicable.”
Air Cargo Market: Air freight growth slows
Figures released in July by the International Air Transport Association showed a slowdown in the growth on the air cargo market. While freight tonne kilometres (FTKs) were still up year-on-year, by 4.5 per cent, growth of in May of 2.1 per cent had almost halved on April’s uptick of 3.9 per cent, and was significantly down on the “robust” annual growth of 4.7 per cent recorded in 2014 as a whole. In addition, the lukewarm May results contrasts with a 4.3 per cent rise in available capacity.
IATA director general Tony Tyler, says: “Cargo growth has undoubtedly come off the boil. The expansion in volumes we saw in 2014 has ground to a halt, and load factors are falling. Some economic fundamentals still point to a rebound in the second half of the year, but we have to recognise that business confidence is flat and export orders in decline. There is also the risk of a shock to the economic system of a ‘Grexit’ from the Eurozone.”
Growth in domestic markets was particularly stunted, and in some cases non-existent. For the first five months of the year, just 0.8 per cent growth was recorded, while, domestically, a drop of 0.8 per cent was recorded for May.
“The main reason for the flattening in the global trend is adverse developments in Asia Pacific,” said IATA. “In April, however, there was some recovery in emerging Asia exports, which if sustained, could ease downward the pressure on air cargo demand going forward.”
This positive tone follows carriers in Asia Pacific reporting just a 2.8 per cent and 2.6 per cent rise in FTKs for April and May, respectively, despite overall year-to-date growth of 6.4 per cent.
“The region has experienced notable slowdown in trade over recent months,” said IATA. “At the end of Q1, trade volumes for emerging Asia were down 10 per cent when compared to the start of Q4 2014.”
Notable deteriorations in FTKs were recorded in Europe, Latin America and North America, down one per cent, 11.3 per cent and 3.2 per cent, respectively for May. For the year-to-date, North America is still up, albeit marginally, by 0.7 per cent, while Europe is down 0.4 per cent, and Latin America has recorded a decline of 8.3 per cent. In fact, the only bright spot on the global map continued to be the Middle East, where volumes were up 18.1 per cent and 13.7 per cent for May and the year-to-date, respectively. Africa can also profess to feeling optimistic, with volumes continuing to grow, up 3.3 per cent for May and 4.4 per cent for the first five months of the year.
However, these results may be masking the under-performances in 2014 of the continent’s major economies of Nigeria and South Africa.
“African airlines, carrying a small part of worldwide FTKs, recorded a rise in FTKs of 3.0 per cent [taking into account domestic performance] in May, says IATA.
“The data for carriers in this region have shown significant volatility over recent months. From the perspective of demand drivers, major economies Nigeria and South Africa underperformed during parts of 2014, however, regional trade activity is holding-up, which should support demand for air transport of goods.”
While a large part of the success reported in the Middle East, IATA says, can be attributed to network and capacity expansion that has encouraged air freight to go through Middle East hubs.
Airport analysis of FTKs shows that though there has been growth there are notable dips in the strength of this growth. Shanghai Pudong International Airport’s cargo volumes for the year-to-date are up just over 10 per cent, compared to year-total growth in 2014 of 16.2 per cent, of course this fails to address the seasonal peaks. However, looking growth for each month of 2015 compared to the same month of 2014, growth has slowed, with one exception. The airport recorded a 29.3 per cent surge in cargo volumes for February, more than tripling the same month in 2014, in which growth was a mere 9.5 per cent. This anomaly aside, there has been continuing cuts to growth. Most notably in March, when the airport recorded growth of just 2.3 per cent compared to 17.4 per cent the previous year.
Airports: Welcome for Heathrow expansion
Logistics industry bodies have welcomed the decision of Sir Howard Davies’s Airport Commission to throw its weight behind an additional 3,500m runway to the north west of Heathrow’s existing runways.
The commission said this option offered the greatest benefits – providing around 40 new destinations from the airport and more than 70,000 new jobs by 2050.
An interim report from the commission recommended that UK airport capacity required an additional two runways, one to be completed by 2030 and a second by 2050. The British International Freight Association, which in 2009 supported the then government’s decision to install a third runway at Heathrow, backed the commission. Director general Robert Keen said that successive UK governments have failed to address the issue.
“BIFA’s hope is that the recommendation delivered in the report moves
things forward in regard to getting started on an expansion of UK aviation
hub capacity,” said Keen. “It is now time for everyone, including politicians of all parties, to pull together in the national interest and support the bold plans to expand and improve airport infrastructure at Heathrow to maintain the UK’s position as Europe’s most important aviation hub.”
Keen added that he was hopeful the report would finally result in some action being taken.
John Cridland, CBI director general, said: “Creating new routes to emerging markets will open doors to trade, boosting growth, creating jobs and driving investment right across the country. Our research shows that eight new daily routes alone could boost exports by up to £1 billion a year.”
Chris Welsh, FTA’s director of global and European policy, said: “Additional capacity at Heathrow is critical to allow importers and exporters to access new and emerging markets in Asia, South America and the Indian sub-continent. FTA urges the Government to take on board these recommendations and act quickly.”
David Sleath, CEO of SEGRO, called on the government to bring an end to indecision and back Sir Howard’s recommendation, and begin construction as soon as possible.
E-commerce: Driving change
Bill Smetham, the general manager for air and ocean freight at GBA services, believes electronic trading is coming of age, and expects to see a “proliferation of faster e-commerce”.
In recent years, air freight operators, in particular, have recognised a growth in the B2C market, according to TIACA’s Doug Brittin.
“Firms like Amazon have come into their own,” he says. “This has impacted on the goods being shipped, and how they’re being shipped – although, this is primarily relevant to the express and postal markets.”
E-commerce is a significant and growing force, with some surprising new markets such as inbound to China, says David Lara of Ceva.
“In some areas, it is leading to breakdown of shipments into individual packages earlier in the supply chain,” says Lara. “In others, it is having the reverse effect of generating greater bulk flows to RDCs in the market before domestic individual package deliveries direct to customers. Overall, e-commerce is probably bringing more freight to air cargo than it is taking away.”
Trading options, says Smetham, are also being widened through cloud computing: “It allows for open architecture for parties to populate and extract data – which widens trading options,” he says.
Managing director of WIN, John DeBenedette, says that the cloud is changing the way people ships goods.
“Cloud computing makes players available globally,” says DeBenedette. “Systems, are open to all that have a web connection, making players on a global scale, available for hire.”
Taking a different tack, Angus Hind, director of air and sea at Europa, says he is seeing a marked increase in less than container load volumes.
Documentation: Papering over the industry
Historically, trade has been conducted on paper. Nowhere is this more notable than in the air, and to some extent ocean, freight markets, where the adoption of technology has been somewhat protracted.
Bill Smetham, the general manager for air and ocean freight at GBA services, says there is an expectation for paper.
“However,” he says, “I believe this is less to do with operators being antiquated, and more the result of commerce.”
Doug Brittin, general secretary at The International Air Cargo Association (TIACA), says: “There are a lot of legacy systems in use, and these are not designed to handle the sharing of information. It’s good to see new systems on cloud that can tie all parts of the supply chain together.”
The problem has been, according to Brittin, the many facets that make up the industry. Air waybills have needed to be checked and scanned by various departments and personnel on their passage from origin to destination. Developing a system that can be rolled out to every department is a costly business. “Add to that, my belief that regulators like paper,” says Brittin.
According to the IATA penetration of the electronic air waybill (e-AWB) jumped in April to 14.3 per cent, a 0.9 per cent increase on March’s growth, surpassing that month’s 205,000 shipments.
IATA put this increased adoption down to new technologies and the uptick in customs’ acceptance of e-AWBs.
Customs authorities in the United Arab Emirates recently formalised the acceptance of e-AWBs for both imports and exports at its Sharjah, Abu Dhabi, Dubai and Al Maktoum international airports.
Saudi Arabian Airlines’ first e-AWB shipment was made using Worldwide Information Network’s (WIN) system.
John DeBenedette, WIN’s managing director says, the system proves, to small and medium sized, forwarders that e-AWB is easy to get going and good for business.
“The air cargo industry is actively engaging customs authorities worldwide to encourage the e-AWB regulatory acceptance,” says IATA. “E-AWB pilots are underway in Kenya, Ethiopia, Brazil and China. At the same time, Lebanese and Jordan authorities are currently revisiting their AWB regulations. This growing momentum from customs authorities is very encouraging for the industry, which is pushing for global e-AWB adoption.”
Ceva Logistics’ vice president of global air network management, David Lara, says that Ceva now has the vast majority of shipments on e-airwaybills system-wide and trades electronically with all of the air carriers that it works work with.
“Our IT investment is producing real benefits and e-AWB is the first step to total e-freight which will enhance efficiency, accuracy and speed of processing,” says Lara. “At the same time, it will reduce our environmental impact through considerably less use of paper.”