Latin America’s main liner trades face an uncertain future, despite 12 months of generally improving cargo volumes.
The recent takeover of Hamburg Süd by Maersk Line, the imminent merger of the liner shipping departments of K Line, MOL and NYK, and the ambitions of MSC and CMA CGM all suggest many service changes are on the cards.
Take the recent announcements by Maersk Line/Hamburg Süd and CMA CGM to revamp their Asia/West Coast of South America services (WCSA), and the significant changes introduced by CMA CGM, MSC and Hapag-Lloyd over the past six months to revise their European/ East Coast South America (ECSA) networks.
The process really started just over a year ago, when Maersk agreed a deal with the Oetker family to buy Hamburg Süd for in excess of US$4B. Immediately, 23 regulatory authorities commenced their reviews of the transaction, and, while the deal was generally waved through, China’s Ministry of Commerce (MOFCOM), Brazil’s Conselho Administrativo de Defesa Econômica (CADE) and the EU’s Competition Directorate imposed a variety of operating conditions on the two carriers involved, and insisted on some service changes.
VSA withdrawal
The EU insisted that Hamburg Süd withdraw from five vessel sharing agreements (VSAs), four of which involved the South America trades: ?
Meanwhile, CADE ruled that either Maersk Line’s cabotage operator Mercosul Line, or Hamburg Süd’s equivalent Aliança Navegacao, had to be sold to comply with Brazil’s competition rules. Collectively, the merger meant two lines had a more than 80% share of the Brazilian coastal container trade.
In December, Maersk concluded a deal with CMA CGM, and the latter company purchased Mercosul Line. “The acquisition is a part of our core strategy, and it will allow us to develop our intra-regional sea transport links, and add complementary services in the logistics sector,” said a CMA CGM spokesperson.
In the case of MOFCOM, Maersk has to end Hamburg Süd’s membership of a VSA currently active on the Asia/WCSA trade, and also terminate a similar agreement on the Asia/ECSA route, and at the earliest date permitted. In addition, the merged group cannot enter into VSAs with its main competitors, notably MSC, CMA CGM and Hapag-Lloyd for at least three years.
Moreover, Maersk/Hamburg Süd have to reduce their reefer container carrying capacity on the Asia/WCSA service from 45-50% (end-2017 level) to 34-39%, and this has to then last for three years.
New landscape
It is the result of these various conditions and competitors’ jockeying for position that has led (and continues to lead) to the service changes taking place.
While the new Maersk/Hamburg Süd plan will mainly affect the Asia/WCSA route, it will also have an impact on the Caribbean/Central America and Northern Brazil trading sectors. In all, 39 vessels, ranging in size from 4,500 to 10,000 TEU, and about 30 ports will be involved in the exercise. It is likely to take two to three months to fully implement.
“Our customers will benefit from additional direct connections, higher sailing frequencies, greater flexibility, as well as shorter transit times,” a Hamburg Süd spokesperson explained. “Our reefer customers will have access to two sailings a week from Chile to Asia, as well as a direct service from Chile and Peru to Japan.”
Four new strings will be provided, including the ASCA/AC5, which will call Singapore, Shekou, Hong Kong, Xiamen, Ningbo, Shanghai, Busan, Buenaventura, Balboa, Manzanillo International Terminal (MIT – Panama), Cartagena, Pecém, and return to Singapore.
It is this loop that is the most interesting and, potentially, significant, as it could lead to a rethink in the way carriers serve the market. First, it is a round-the-world service. Second, it offers unprecedented coverage of the Colombia market, with direct calls at both Buenaventura and Cartagena. Third, it schedules calls at the group’s principal hubs in Latin America. Effectively, this links the whole of the Caribbean basin with Asia.
Fourth, it offers a direct call in Northern Brazil – a first for the Asia trade in more than five years. Fifth, it offers one of only a few links between Colombia, Central America and the Caribbean and Northern Brazil. Sixth, it provides fast transit times between Pecém, (serving a fast-growing fruit producing region in Brazil) and South East Asia and China. The transit time between Pecém and Singapore will be an estimated 19 days, and to main ports in China 25/26 days. This is as much as a two-week saving on current transit times, which mainly involve transhipment over southern Brazilian ports.
A total of 11 x 7,100 TEU capacity ships will be assigned to the route. They will be able to load 1,600 reefer containers.
Lars Oestergaard Nielsen, president of Maersk in Latin America, said “Our new service has been designed with a focus on our customers, and it will enable them to continue growing their businesses in the region. From April, Colombia, the Caribbean and Brazil, especially Pecém, will benefit from direct connections with Asia, improved transit times with the Far East, and greater port coverage.”
Reaping rewards
Operationally, the new service should offer considerable benefits to the Maersk group. It should, for instance, allow the line to cut the number of repositioning moves for empty equipment, improve utilisation levels for expensive reefer boxes, and allow some excess tonnage in the fleet to be absorbed.
Currently, Maersk and Hamburg Süd’s other East Coast South America/Asia services remain unaffected by these changes, but the Hamburg Süd spokesperson alluded to changes taking place at the end of 2018.
Interestingly, CMA CGM’s new Asia/WCSA plan, which will also kick off in early April, involves its main east-west service partners, China Cosco Shipping Co. and Evergreen Line. It will result in the carriers offering three more service strings in the market, and substantially more operating capacity as a consequence.
In its advisory note about the new services, CMA CGM stressed that each loop had been designed in accordance with its recently launched customer-focused Serenity programme, and that exporters of wood and pulp products and perishables would benefit enormously.
The three new loops comprise:
CMA CGM’s latest move is part of a strategic plan aimed at expanding the carrier’s share of the Latin America liner market, and generally improving its service offering for its customers. In addition to the purchase of Mercosul, joint service arrangements concluded with Maersk/Hamburg Süd have substantially increased its slot capacity on routes linking ECSA with Northern and Mediterranean Europe.
Elsewhere, Ocean Network Express (ONE), which is the new name for the grouping of the Japanese lines, intends staying in the agreements that the three lines already have in place. It is a relatively straightforward exercise, particularly on the Asia/WCSA trade, as they currently work with each other and partners that include MSC, HapagLloyd and HMM.
Currently, ONE is involved in three strings, with calls extending from Coronel/Lirquen in Chile to Manzanillo in Mexico. Ships of up to 12,000 TEU are deployed.
Market report
Trading-wise, the past year has seen an improvement on many of Latin America’s trade lanes, as the recovery in oil, gas and raw material prices has boosted exports and generated more income for the import of capital and consumer goods.
In its Q3 2017’s review of the Brazilian market, Maersk Line’s Antonio Dominguez, managing director of the company’s ECSA cluster (Brazil, Argentina, Uruguay and Paraguay), said: “It is very encouraging that retailers are, for the first time, doing much more [this year] than just restocking their shelves. They are actually increasing their stocks, and this represents a stark difference to what happened in 2016.” The executive noted that the import of manufactured goods in Q3 2017 was up 44% on the corresponding period of 2016 and, “significantly outperformed every other sector”. It confirmed the ongoing strength of personal consumption.
Dominguez also pointed to the port of Manaus. “Imports into Manaus, which primarily assembles electronic products for consumers living in the wealthiest regions of the south and southeast of the country, jumped by 35% in Q3 2017,” he said. “That points to economic recovery and a more optimistic consumer.”
Brazil buoyed
Maersk’s review also highlighted a strong recovery in Brazilian exports in Q3 2017, with dry cargo volumes up 6.6%, and reefers rising by 7.4%.
“These strong export volumes have put us [the shipping lines] under a lot of pressure, and we at Maersk have responded and changed the way we serve the market, particularly for our reefer customers in northeast Brazil,” explained Nestor Amador, commercial director of the ECSA cluster. “We have also made more reefer containers available to our customers across the country, and rolled out our remote container management system so that they can track and monitor the condition of their cargo during the whole journey.”
In terms of northeast Brazil, Maersk started a dedicated shuttle service between Pecém, Algeciras, Rotterdam and Tilbury with four 1,800 TEU capacity ships, each of which has the potential to load 800 reefer TEU. It is scheduled to run until the end of February, which signals the end of the region’s main fruit harvesting season.
“The European market accounts for 65% of fruit exports from Pecém, so this dedicated service enables a faster connection and more reefer slot availability for the region’s producers,” said Daniel Rose, managing director of APM Terminals Pecém. “It ensures that cargo shipped remains fresh for the final consumer.”
Boost for Pecém
Maersk has not been the only carrier targeting calls in the northeast region of Brazil to service its fast-growing fruit exports. Since September, CMA CGM, Hapag-Lloyd and MSC have all been calling at
Pecém within various European services. Its location as the nearest port to Europe and the US, and where diversion distances from the main shipping channel are small, make it an ideal call. Pecém’s success in attracting so many new services is partially related to investments that APMT has made in the port’s container terminal. Rose explained: “We have been working closely with our shipping line customers and our landside customers to ensure they have the port service levels needed to grow their business.
“We now offer the highest operational performance indices in the market, with a consistent and reliable 70 moves per hour using our two new STS cranes. This is double what it was prior to the cranes’ arrival in 2016. These numbers mean we have also attracted transhipment volumes, which tripled in 2017 compared to 2016.”
Overall, Pecém handled a record 213,951 TEU in 2017, and this was up 19% on the previous year. Over 40,000 TEU comprised reefer cargo.
A cargo sector that has performed particularly well over the past year has been automotive, with the shipment of finished vehicles, assembly kits and components all increasing, and with prospects for this year encouraging (see box story).
With cargo volumes picking up, Latin America’s liner trades are in a better position than they were 12 months ago, but uncertainty will affect sentiment, and more service shuffles will take place.
Read this item in full
This complete item is approximately 2000 words in length, and appeared in the February 2018 issue of WorldCargo News, on page 19. To access this issue download the PDF here.
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