Ocean carriers - and by extension, shippers - will be facing “very challenging and competitive” conditions in 2016, according to Christopher Koch, Senior Advisor at the World Shipping Council.
Koch warned shippers to be prepared for less ‘free time’ allotments for their containers in 2016, “Let me start by stating what is unfortunately not obvious – “free time” is not free. The containers ocean carriers provide shippers are not free. The chassis are not free. Their capital expense to the carriers is enormous. Their M&R (maintenance and repair) expense is substantial. The opportunity cost of not having a container or chassis available for another customer because another shipper is holding it is substantial. The space a container uses in a port facility is not free. It is using very expensive real estate, and every day a container sits in a busy facility, it adds to facility congestion and terminal operating costs.”
Koch told the Pacific Transportation Association at its dinner in Oakland, California on November 18th to prepare for the following 2016 eventualities:
- The Market and Industry Investment. “Market forces for liner shipping will continue to be very challenging and competitive. Rates and industry profitability will continue to be under pressure. Carriers will continue to focus on lowering their operating costs and improving their efficiency. Carriers’ operating costs and capital investment will be managed frugally by necessity.”
- Increasing Environmental Regulatory Costs. “Costs of environmental compliance will increase. A decision from the (U.S.) Coast Guard on ballast water treatment technology seems probable in 2016, likely triggering massive technology retrofitting requirements. Vessel air emission regulatory forces will continue to require the industry to seek every practical means to improve its energy efficiency.”
- Customs and Security. “The Customs and cargo security regime in the U.S. continues to appear relatively stable, effective and responsive to both trade and security imperatives.”
- Safety. “The new IMO (International Maritime Organization) container weight verification requirements become mandatory on July 1. Shippers, carriers and terminal operators better get ready and better communicate with each other. Time’s a-wasting.”
- Port Efficiency. “All parties will continue to consider how the efficiency of local port facilities can be improved. Each port will face its own particular issues. This work is underway. Smart people are working on it, but it will be an ‘all hands’ effort.”
Koch warned of tougher environmental regulations:
- “Emission control areas” or ECAs adjacent to North America, the North Sea and the Baltic require marine fuel to have no more than 0.1% sulphur, which is substantially more expensive. One should logically expect that these will not be the last ECAs. For example, with China’s horrendous air quality problems, ECAs are an obvious potential environmental response in that part of the world.
- At-berth low sulphur fuel requirements, in addition to ECA requirements, are applicable in Europe, California and Hong Kong.
- Vessels being built in 2016 and thereafter that will operate in the North American ECA will need to be equipped with Tier III NOx technology (i.e., selective catalytic reduction (SCR) technology or exhaust gas recirculation), increasing the costs of new ships.
- But all of these requirements pale in comparison to the impact of the MARPOL (Marine Pollution) Annex VI requirement to end the global shipping industry’s current use of heavy fuel oil and to mandate a maximum 0.5% sulphur fuel globally – not in Emission Control Areas, but anywhere at sea. This will be the single most expensive environmental regulation the shipping industry has ever faced. The estimated cost of switching from heavy fuel oil to a 0.5% sulphur fuel on a global basis could be $75-$100 billion annually.”
Finally, the Port of Oakland “will continue to face its fair share of challenges, including a strong dollar and a cooling Chinese economy adversely affecting exports,” he said.