Page 48: of Maritime Reporter Magazine (September 2012)

BLOGS@ MARITIMEPROFESSIONAL.COMChina StumblesMore Pearl River Delta factories failing as demand falters Box Throughput Set to Soar Cabotage Law relaxed for Vallarpadam in South India With orders down by 30 percent, the Factory of the World has fallen on hard times with thou- sands of manufacturers out of business. It is something any liner company serving Asia will tell you. The demand for shipping slots on the major East-West trades is down and the carriers are hurting. But as container lines struggle to find an antidote to the precarious oversupply-low freight rate position they have found themselves in, spare a thought for the factories that manufacture the goods they carry. There are an estimated 50,000 Hong Kong owned factories in the Pearl River Delta making goods for export. Or at least the were. The Feder- ation of Hong Kong Industries estimates that 15 percent of the factories have been forced out of business. Making the kind of low value goods that are shipped in bulk and in containers, or furniture and machinery that is too heavy to go by air, is a narrow margin business. Those margins have been steadily squeezed over the last five years by regular hikes in the minimum wage, changing labour contracts, the rising cost of raw materials required for production, increasing rental costs for companies andstaff and the lowering of VAT rebates. Even with better wages, labour has become scarcer, forc- ing the payroll even higher. Migrant workers can now find employment closer to their homes as Beijing stimulates manufacturing in the inland provinces. The South China Morning Post reports that Dongguan,the traditional heart of Pearl River Delta manufacturing and once an economic powerhouse, has seen its GDP fall in the last year, lagging other major cities in Guangdong Province and dropping behind the national guideline of 7.5 percentgrowth for the year. Beijing is reportedly looking at raising the tax rebates for certain exports in a bid to stimulate busi- ness as it did in 2009. Whether that will have any effect with such a consumer-led weakness in demand is debate- able. What is certain, however, is that container shipping lines will not be able to count on a rebound in the export business this year. It is keeping heads down time with cost saving on top of the agenda until the new year rolls around. Posted by Greg Knowler (Shanghai) on MaritimeProfessional.com Bunker Surcharge Hackles are rising over the 15-mem- ber ?discussion? group, the Transpa- cific Stabilization Agreement, and its ?discussion? that has led to an ?adjust-ment? (when any authority speaks of an ?adjustment,? you can be darn sure the price is going up) of the bunker charge of $17 per FEU to the West Coast; and $21 per FEU to the East and Gulfcoasts. It?s all because of the Emission Control Area and the use of low sulfur fuel. The hackles being raised are those of the customers of the 15 carriers, whoare being saddled with the increase.They are putting pressure on the carri- ers to slack off; because the ECA is an international measure under the aus-pices of the United Nations imposed tomake the world a better place and is not just another random, arbitrary taxdreamt up by Washington. They are also looking very closely at lines that are not members of the TSA, to see if they?re shoving on a surcharge. In theory they shouldn?t be and in fact a couple of them are dithering as towhether to hold back, in the hopes ofdrawing away some spot market trade. There is also some snorting of deri-sion at the reasoning from the TSA. ?Lines with scheduled services are alsoconcerned about the spike in demand for low-sulfur fuel created by the ECA, and effects in the near and midterm on supply and price,? says Brian Conrad. ?Not with two years warning of the ECA, there shouldn?t have been,? was the exact comment by an industry in- sider. ?How come more depots and re- fineries have not become available,? says the insider, ?and how come the carriers didn?t jump on the ports to get ready? Many of the ports are at least partly run by private companies, which should have had ample warning the ECA was on its way and, unlike ports run solely by government-related au- thorities, can jump onto projects muchquicker. ?It?s just another case of the customer drawing the short straw.? Europe went through a similar expe- rience, with the number of low-sulfur depots doubling within two years. The US industry is hoping that priceswill drop once supplies are more read-ily available. Not that anyone reckons the TSA will remove the surcharge in a hurry. Posted by Martin Rushmere on MaritimeProfessional.com Now that the Cabotage law for the DP World?s trans- shipment hub at Vallarpadam, Kochi has been re- laxed, the container throughput should skyrocket The Indian government has finally relaxed the Cabotage law for the Dubai Port World (DP World) operated Inter- national Container Transshipment Terminal (ICTT) at Val- larpadam, Kochi in South India despite the spirited opposition by the Indian ship owners lobby. This decision to relax for a period of three years was taken by the cabi- net last Thursday. It could be extended after that on re- viewing the situation. The Cabotage policy does not allow foreign ships to engage in coastal trade in India. With the relaxation foreign flag vessels can carry EXIM containers in domestic waters if shipped through the ICTT. According to the statement issued by the government the objective for the relaxation is to attract cargo destined for Indian ports, which are currently being transshipped inColombo and other foreign ports. The initiative is expected to promote transshipment of Indian cargo from ICTT, Val- larpadam and reduce the dependence on nearby foreignports.It is nearly two years since DP World?s ICTT was in- augurated as a transshipment hub by the Prime MinisterManmohan Singh. But the container throughput failed to take off as expected, the reason being given is that there is almost total lack of feeder services. The Indian National shipowners? Association (INSA) had opposed any relax- ation of the Cabotage law even though they have only 15 feeder container ships under the Indian flag with a totalcarrying capacity of 15,000 TEUs. Besides, Indian ship owners have little interest in the Indian trade as they carry only 8 per cent of the India?s International trade. An expert on Indian shipping commented, ?The Indian container fleet is woefully inadequate to service the re- quirement of Indian shippers efficiently and cost effec- tively. So long as the cargo reservation remains in force, domestic container lines will try to keep freight rates high.? With the relaxation of the Cabotage, various container shipping lines plan to get into the Indian coastal trade in-cluding MSC Mediterranean Shipping Company informed Capt D K Tewari, Chief Executive Officer of MSC Mediterranean Shipping Company S.A. and Chairman of Container Shipping Lines Association (CSLA). ?The CSLA members are waiting for the issuance of the Cus- toms Notification and the guidelines from the Director General of Shipping, to see what regulations will be im- posed. Some have indicated their definite interest in oper- ating feeder service.? Once it picks up pace, the ICTT will revolutionize India?s international trade as nearly 2 to 3 million TEUs which get transshipped through Colombo, Jebel Ali and Salalah, Singapore and Malaysian ports would come directly to India through ICTT. The Indian goods will greatly benefit from this as it will help lower the cost of transportation making them lot more competi-tive overseas.The monopoly hitherto enjoyed by domestic container lines will go and both the foreign and domesticcontainer shipping lines will canvass for cargo for move- ment along the East and West coasts of India. As the fresh air of competition enters this sector, the quality, frequency, service reliability and speed of delivery will improve re- sulting in a substantial reduction in freight rates.Posted by Joseph Fonseca (Mumbai) on MaritimeProfessional.com 48Maritime Reporter & Engineering News MR#9 (42-49):MR Template 9/12/2012 11:35 AM Page 48