Ports and terminals could be next sector affected by weak market

The next big losers in the shipping industry are likely to be ports and terminals, and this could lead to a decline in safety and services, according to Alessandro Menezes, associate director, transportation sourcing, at petrochemical shipper Vinmar, and Julien Horn, director of TT Club.

Speaking at TOC Middle East last week, nearly all speakers from all shipping sectors urged the industry to halt the “race to the bottom” across the supply chain.

“The Hanjin episode served as a wake-up call – this is not a sustainable way of doing business,” Menezes said, noting that “there is a risk factor for ports, with 80% of the world’s fleet in alliances. If alliances squeeze prices too tight, terminals can’t invest.” He also urged shipping lines to re-evaluate their own pricing structure so that freight rates were based on value, rather than cost.

Praveen Joseph, regional VP ocean freight for DHL Global Forwarding, said that part of the problem was customer behaviour. “Low freight rates are not just caused by overcapacity, but customer behaviour. Customers have saved about $23bn since 2010 – but have they considered the high cost of low prices? Lines have to cope with extra costs like repositioning and no-show bookings. They no longer control cargo flows and carriers then have to cut costs, and that leads to blanked sailings. Which leads to far higher supply chain costs. A commoditized product leads to service decline”, he said.

TT Club director Julien Horn noted that alliances had been formed to cut costs and to fill ships, but that this put  pressure on ports and terminals. “Ports are being asked to be better and cheaper. People tell me they are cutting costs – but where? It’s in maintenance and in training, and they are not updating procedures.”

Horn noted that TT Club statistics revealed 73% of accidents to be the result of operational errors. Lack of maintenance led to 16% of accidents, while lack of contingency planning made up 11%. Horn said that 26% of all operational claims came from crane malfunctions, mostly bumping into ships.

“It costs $15,000 to install technology on a crane which prevents this,” he advised, Although most accidents could be covered by insurance, reputational damage and increased future premiums needed to be considered. “Be better, not cheaper,” he said.