Friday, October 21, 2005

Congestion? What Congestion?

Europe's brittle supply chain could snap anytime over the next two months as its ports struggle to cope with an armada of giant containerships laden with consumer goods from Asia. The danger of breakdown is greatest during the peak season across the Le Havre-Hamburg range of ports which handle the bulk of Europe's seaborne trade.

The north European waterfront suffered its first bout of congestion last summer when it was overwhelmed by a sudden, and totally unexpected surge in shipments from China that was largely responsible for the Europe-Asia trade growing by around 17 percent over the previous year.

And with China increasingly counting on exports to Europe and the U.S. as an outlet for surplus production churned out from factories built during a frantic two-year investment spree, a repeat of last year's glut this winter may be inevitable. Don't worry it will get even worse in the 2006 peak season.

Early reports of congestion are surfacing even as ports and shipping lines fine-tune their plans for the peak season. German inland barge operators claim vessels of up to 450 TEUs capacity are being forced to wait for up to 30 hours to unload their containers at Rotterdam and Antwerp as terminal operators are giving priority to ocean-going ships. Barge operators may have a low status compared to the giant ocean container carriers but they are major players in the transport chain, hauling around 2 million TEUs a year in Germany alone.

Extra container handling capacity should come on stream, begins but it is unlikely to keep pace with cargo growth. Antwerp opened a 1.5 million TEUs-a-year terminal in early July that may have restored its competitive edge and a reputation as Europe's most efficient port. The lack of spare capacity is still taking a toll with container traffic rising a miserly 3 percent in the first quarter from a year earlier to 1.5 million TEUs compared with double-digit growth across northern Europe.

Fears of a repeat of last year's chaos have also brought into a play a 1 million TEUs-a-year container terminal in Amsterdam that has worked only a handful of ships since it was opened in mid-2001. The Grand Alliance, a consortium of European and Asian carriers, wanted to shift a couple of Rotterdam services to the facility, which is half-owned by one of its members, Japan's NYK Line, but another member, P&O Nedlloyd, vetoed a move it regarded as a threat to a box hub it is building in Rotterdam which is not due to open for another three years. P&O Nedlloyd finally caved in (because after the APM acquisition, it simply didn't care) and two Grand Alliance services will call at the Ceres Paragon terminal generating annual traffic of between 175,000 TEUs and 225,000 TEUs.

But the extra capacity in Amsterdam and Antwerp, buoyed by more efficient operating procedures introduced after last year's jam, is unlikely to be sufficient to stave off congestion. The long forecast slowdown in China's foreign trade hasn't materialized -- its industrial production soared by 16.6 percent in May from a year earlier, driven by a year-on-year growth in exports exceeding 30 percent. And it's not just China: imports from other Asian nations are rising sharply, the traditionally lackluster North Atlantic trade is experiencing strong growth and the Europe-South America routes are enjoying an unlikely boom.

It isn't just the surge in cargoes that has overwhelmed Europe's top ports, it's the ever larger ships that are carrying them. The 8,000-TEU vessels, which account for around 30 percent of the bulging global container ship order book, are causing all the problems in the ports. A typical 5,000-TEU ship offloads around 2,000 TEUs at a main hub port, while an 8,000-TEU vessel will dump up to 6,000 TEUs. The problem is aggravated by the fact that on key routes such as Asia-Europe, these behemoths are calling at fewer ports and disgorging larger and larger loads. What's more, the biggest containership afloat can be built within a year, while a large container facility can take up to 10 years, much of its spent crawling through Europe's labyrinth planning procedures.

But the ports are the industry's whipping boys, particularly among their shipping line customers, less so with shippers and freight forwarders who take a balanced view of the problem. Shipowners have become less restrained since a top OOCL executive claimed Antwerp and Rotterdam were the only ports capable of handling the dozen 8,000-TEU ships it will be sailing into Europe in 2007 and questioned Le Havre's status as a global port. The latest salvo was fired by P&O Nedlloyd, which lambasted Hamburg for its lack of flexibility and warned the carrier would take its business elsewhere if service doesn't improve. This is what will happen after the APM acquisition is finalized.

Stung by the criticism, most ports have taken steps to avoid congestion, hiring more dockworkers, introducing added shifts and installing extra cranes. Some have gone further, like Southampton, which became the first British port to require trucks to book ahead before they arrive on the terminal and penalize those that miss their slot " by even a minute" with a 25-pound [$45] charge. The port has also boosted its annual capacity by some 400,000 TEUs since last year by acquiring more land and reorganizing its container yard.

These piecemeal measures aren't likely to make a major difference, however, and most industry analysts predict congestion will be an occupational hazard until the turn of the decade when a wave of new capacity comes on stream.

European terminals could, however, do more to attain Asian-level productivity. The fear chronic peak season congestion will persist for the remainder of the decade has focused attention on the role played by Europe's bureaucratic planning process that has delayed construction projects across the Le Havre-Hamburg range and beyond. Not to mention the continued glut of the European Intermodal network.

Many in the industry reckon ports are in a mess because governments don't think there is much political mileage in a less-than-glamorous sector. Railroads are worse...and nobody wants to support the trucking industry either. So, whats next?

If the industry, the politicians, and consumers continue to keep their head in the sand, its only going to get worse. Who is going to step up and take on the challenge? Your guess is as good as mine...but hey, just ring me up on my cell phone!

Have a great weekend!


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