web statisticswebsite tracking software
bradskelton.com theshippingbloke.com

Friday 21 September 2012

Shipping Line Fuel Surcharges... Blatant Ripoff?

(You are getting this note because you subscribed to The Shipping Blokes Blog by Brad Skelton)

Fuel for ships is known as "bunker fuel" and since the global financial crisis(GFC) bunkers have fluctuated dramatically with a sharp drop post GFC followed by a dramatic increase.

I am amazed at how different carriers apply or choose not to apply bunker surcharges of one description or another even when they operate in the same markets and source their fuel from the same place. Of course the carrier charging it claims they are bleeding and simply can't afford not too. I always enjoy the the look of terror on the sales reps face when I ask how come their competitor isn't charging it and has nearly identical cost structures. I am yet to ever get a plausible explanation.

The carriers that do apply a surcharge most commonly call it B.A.F. This stands for Bunker Adjustment Factor. Another one used by one RoRo carrier is E.F.A.F which stands for Emergency Fuel Adjustment Factor. The word "Emergency" always puzzles me too. Where is the emergency when bunker prices are falling? It's really just marketing spin to help justify a charge that perhaps isn't fair in the first place both in it's conception and it's application.

Another puzzling aspect is why does the application of BAF or EFAF not follow oil price increases and decreases exactly?

When a carrier prices a shipment the rate is made up of a few components. Vessel cost (whether it be charter fees or repayments to banks), part of the port fees, fuel and administration costs. Why then do carriers apply their BAF of say 55% to the components other than fuel? This is another thing any shipping line sales rep is yet to be able to explain to my customers and I.

By the way, how can you possibly charge 55% anyway? That's enormous and surely far outweighs the actual fuel cost itself.

Where there is confusion in terms, or emergencies, there is scope to squeeze more money out of the shipper in the end. I think it's about time some shipping lines came clean and stop the games and rip off. The market can't afford it any more.

My clients and I would rather see all carriers drop this charge altogether and build their fuel costs into their freight rates like most other transportation operators do whether via road, rail and air.

What could be more transparent than that?

All for now,

Brad Skelton

The Shipping Bloke

Monday 20 August 2012

No doubt about the Canadians..a FTA with the EU.

(You are getting this note because you subscribed to The Shipping Blokes Blog by Brad Skelton)

It has barely been reported in the media around the world but one of the worlds biggest mining and resource nations, Canada, is hurriedly trying to secure a Free Trade Agreement (FTA) with the European Union. A truly brilliant move in my book.

Mines in Europe are generally all but depleted so the primary resources need to be shipped in from somewhere so Canada is setting about ensuring it becomes the most competitive supplier possible by removing import duty and taxes on it's resources. No mining or carbon taxes being applied there unlike with the Canuk's biggest competitor, Australia.

Canada needs the business as the resources landscape in Canada is changing. Traditionally Canada has been a big energy supplier to it's southern cousin, the USA. However this is changing as the USA is increasingly using fracking technology to get natural gas out of places once thought impossible so the need for Canadian energy is diminishing.

Another reason is that with uncertain global economic conditions and generally slowing GDP growth in most regions of the world, it is only prudent to try and create conditions that lock in one the worlds biggest consumers as a customer, the EU.

On the otherside of the Atlantic with an FTA in place, a debt ridden Europe will no doubt love selling and shipping more BMW's, Gucci and Louis into Canada without import duties as well.

As a proud Aussie I am frustrated that my country isn't doing all it can to beat the Canadians to the punch with the EU. In fact we seem to be doing the opposite which will ultimately be at our peril. I think we have too much reliance on the Chinese buying our natural resources.

By the way, the cost of shipping from Canada to China is not that different from Australia so I think we better watch our backs as the Canadians are proving to be leaner, meaner and more agile and I'm sure are working hard on winning over our biggest customer.

Australia needs to take a leaf out of the Canadian's book with the EU and quickly get FTA's with our biggest trading partners and remove taxes that make us a less competitive supplier.

By the way, a little bit of intervention by the Aussie Reserve Bank to get our dollar down from 1.05 against the USD would help our exporters out a hell of a lot too!

What part of "exports bring money into the country to deal with debt and help us prosper" don't our regulators get?!

All for now,

Brad Skelton
The Shipping Bloke

Wednesday 15 August 2012

How many containers REALLY get lost at sea?

(You are getting this note because you subscribed to The Shipping Blokes Blog by Brad Skelton)

Frequently in the media I hear statistics quoted that up to 10,000 containers are lost overboard  at sea each year.  In these modern times, why does it happen at all?

A number of factors ranging from severe weather and rough seas to catastrophes like the ships themselves getting lost at sea just like the "Rena" (pictured off the coast of New Zealand) contribute to the losses. Safe stowage can also be compromised by shippers overloading containers although progressively most countries are following the International Maritime Organisations agenda to have the weight of all containers properly verified before loading.

As for the reliability of the data....there is isn't central source keeping track of this nor do the marine underwriters compile or publish any accurate statistics. The World Shipping Council has surveyed it's member shipping lines to try and find out how many containers are actually lost. It was radically different to what media outlets sensationally suggest. 

Not counting catastrophic events the survey revealed a figure of only 350 containers being lost each year. If you include catastrophic losses like the "Rena" then the number only rose to 675. A far cry from 10,000! Considering the millions shipped each year that's not too bad.

So the yachties of the world are safer than they think, my clients can probably sleep tonight and so can their underwriters. I still recommend you get insurance though!!

All for now,
Brad Skelton
The Shipping Bloke

Sunday 3 June 2012

Australian shipping revitalisation...It's desirable but unachievable.

(You are getting this note because you subscribed to The Shipping Blokes Blog by Brad Skelton)

The Australian Government wants to revitalise the shipping industry to help with what the transport minister describes as an immense freight task with the resources boom. Currently there are five bills making their way through the parliamentary process. These bills include substantial changes to existing coastal shipping legislation and tax incentives for Australian ship owners and operators.

As an island continent I would personally love to see Australia's shipping industry revitalised however I believe the governments efforts are focused on the wrong things and with the shipping industry struggling financially, they are completely mistimed. 

As a consequence of the governments reforms, on Friday night Hoegh Autoliners announced to the market they are suspending their Australian coastal service. They are not the first carrier to do so however Hoegh were one of the largest RoRo operators providing this extremely important service. To my clients, who ship heavy and wide mining and construction machinery, which is difficult and extremely expensive to move via road and impossible to rail, this is a real blow and I suggest creates another cost impost on the mining industry. For the road using public, this means that suddenly much more wide, heavy and slow moving freight will be hitting our highways creating even more pressure on the road network.

In essence the government is wanting to create a broad range of incentives to companies willing to invest in rebuilding the shipping industry. They are also making it more costly and difficult for foreign owned carriers like Hoegh, to participate in coastal trade. So to any Australian company brave enough, in competitive terms and in theory, you should have a pretty good chance of building a viable business with government legislative support.

That is of course if as a ship owner you can overcome a few other obstacles to operating in Australia such as:
-Financing the purchase of suitable multi-purpose ships. Currently shipping financiers globally are simply not lending much. This is because global charter rates are very low and the value of ships in general terms has dropped about 30% thus weakening any financiers security position.
-Stevedoring in Australia is still currently far less efficient than other countries and in itself creates a significant cost burden on any operator. Recently MISC, the Malaysian owned shipping line, withdrew services from Australia citing inefficient waterfront practices as one the main reasons for making their Australian service unviable.
-Very high salaries and wages for Australian seamen compared with labour from other countries.
-The market being able to accept what will need to be very high ocean freight rates as coastal traders will not have the benefit of revenue from international cargo like foreign operators do which effectively subsidises coast freight rates.

We seem to have a short memory. Australian National Line (ANL) used to be our national carrier and in it's day, owned and operated good multi-purpose vessels internationally and coast-ally but some years ago it was sold by the government to the French owned CMA CGM. It was sold because financially it couldn't deal with these very factors. Apart from some intended tax and depreciation relief the legislation contemplates, I can't see that anything has really changed or changed enough to allow an Australian shipping industry to take root successfully again.

From my perspective to achieve the governments goal of shipping helping Australia with it's freight task they should be making it easier, not harder, for foreign operators. Australians need to face the reality that our labour costs here are prohibitive and will remain so to the shipping industry. Further waterfront labour reform is needed to help make our stevedores deliver worlds best efficiency thus making servicing this country more attractive.

If these things are done then shipping will be able to greatly help the Australian freight task but if not, then this humble shipping bloke really can't see anything changing except for there being alot more heavy traffic taking to our roadways.

All for now,

Brad Skelton

The Shipping Bloke

Wednesday 2 May 2012

The new protectionism - EPA

(You are getting this note because you subscribed to the Shipping Blokes Blog by Brad Skelton)

I met with a client today who is a major shipper of earthmoving, mining and construction machinery. Apart from the usual conversation about freight rates, shipping lines and quarantine compliance, our conversation turned to the EPA(Environmental Protection Authority) rules around diesel engines that powers equipment.

While I think we agree that reducing emissions is desirable and important, the hypocrisy and lack of fairness starts when you have different EPA agencies around the world producing their own rules on what engines will comply for their country. This has resulted in manufacturers building multiple engine types depending on what rules apply in the country the machine is destined for. There are differing "tiers" of engines for various countries.

Most manufacturers have realised that in the name of saving the environment, they can conveniently use this EPA legislation to protect their markets from imported machinery which may be fitted with engines that do not comply. They are building machines so that once exported, they can never come back or be sold into other markets with different EPA compliance requirements.

When I studied as a customs broker and freight forwarder there was a world trade agreement called GATT. The General Agreement on Tariffs and Trade. GATT existed as the World Trade Organisation tried to moderate and control protectionism to keep trade relatively fair. 

Protectionist policy is essentially countries using import duties and tariffs to protect their local manufacturers and markets from cheaper imports. As globalisation and free trade agreements between countries gained momentum GATT was abandoned and protectionism has fallen out of favor and is now considered archaic and politically incorrect. As an aside, try telling that to workers in the western world who are losing their jobs in manufacturing to Asian competitors right now though! This might be a somewhat wild idea but protectionism, in this current tough global economy, might even make a come back as countries try and save whole industries and jobs. It would also raise government revenue to pay down sovereign debt. Anyway perhaps there is a future blog in that topic for another day!  

During the conversation with my client today I said to him that clever manufacturers are leveraging EPA rules as effectively "protectionism" under a different name. He agreed. Therefore EPA rules are already impacting "fair trade" and will gradually and ultimately lead to less global trade of heavy machinery unless something changes. In the old days of GATT, someone would have been shouting "not fair" and the WTO would be stepping in but who would dare do this now and then be seen to not be environmentally responsible? 

So what would be environmentally responsible then? To me there should only be one standard of engine produced. That being the one with the lowest emissions. Why bother even building anything else? Forget the rest. That's what environmental responsibility looks like to me. Now I am just a humble shipping bloke, not an engineer or mechanic, and I suspect differing fuel quality in some places may present a challenge to this idea. I don't know but the whole planet breathes the same air ultimately so this situation seems ridiculous and irresponsible to me.

This reminds me of another absurd situation in the name of protecting the environment in my own country, Australia. Here the Department of Environment and Heritage is wanting to ensure that air conditioning gas in machinery is of a type that is non-ozone depleting. Fair enough but this caused the department to institute an import permit regime on all imported machinery and vehicles that have air conditioners. As yet most countries don't even have any rules on this so consequently many machines air conditioners are still filled with ozone depleting gases. 

To avoid having to apply for import permits nearly all of our clients elect to get their supplier to evacuate the gas overseas before the machine is loaded on the ship to Australia. This takes me back too a point already made in this blog that the whole planet is sharing the same air ultimately so this is stupid. 

My company has pointed out to the department that effectively the import permit system is actually counter-productive not only for Australia, but the ozone layer no matter what country you live in. The response:- "That's okay, here in Australia we are doing the right thing and the rest of the world needs to catch up". Meantime somewhere in the world more ozone depleting gases are getting released into the same atmosphere we all share.

The sooner the whole world converges on truly uniform standards on EPA rules the better off global trade and the environment we live in will be.

All for now,

Brad Skelton

The Shipping Bloke

Sunday 29 April 2012

Would you live and work in a shipping container?

(You are getting this note because you subscribed to The Shipping Blokes Blog by Brad Skelton)

Since containerisation started in the shipping industry in 1956, the question has exisited of what to do with them when they are no longer fit for the rigors the sea throws at them? The average container has a life span on the ocean of between fifteen and twenty years and potentially much longer than that back on dry land.

Well, how would you like to use them for your home or office?

They are cheap ($1000-$3000 each depending on the age, type and condition), easy and cost effective to transport to site or re-locate, stackable, secure, incredibly durable, fast to errect with minimal foundations required, easy to plumb, easy to wire and are eco-friendly and can actually look ok.

Alright.....I only said "ok" not "great". There are now dedicated architects for shipping container buildings doing some incredible things with them. Offices, multi-storey hotels, homes, cafes can all be successfully built from them.

I can visualise the funky beach house in the future for the Skelton clan already. Maybe...

All for now,

Brad Skelton

The Shipping Bloke

Saturday 14 April 2012

Staggering overcapacity in the global shipping fleet.

(You are getting this note because you subscribed to The Shipping Blokes Blog by Brad Skelton)
I recently received a commentary from Ferrier Hodgson with some amazing facts I thought I'd share on the global shipping fleet and cargo volumes.

In January 2011 there were 103,392 cargo ships operating globally. This number of ships grew an amazing 54% from 2005 in order to meet a pre-GFC high demand.

In this period the number of container ships grew by 83% and bulk carrier numbers grew by 63%. The growth in shipping capacity completed outstripped the growth in seaborne cargo which for the same period was only up 27% to 8879 million tonnes and.....the global fleet is still growing. About 16% more new ships are being added in 2012 from orders placed by ship owners years ago.

A massive imbalance in supply and demand in shipping has been created. Bulk carriers have been the worst affected with current charter rates dropping to the lowest levels in about 30 years.

The value of ships has dropped by about 30% which is causing financiers to get nervous about their security position.

For shippers and freight forwarders this situation is mostly benefiting them. It is leading to some very keen freight rates in some trade lanes as a result of carriers lowering their profit margins in an attempt to maintain or capture greater cargo volume.

The downside is that some ship owners are in a very precarious financial position and cannot withstand much more stress from ongoing operating losses and devalutions of their fleet. Most carriers are continuing to adopt cost cutting measures by dropping port calls and steaming more slowly to save fuel costs.

A consolidation of operators looks inevitable unless cargo volumes really pick up soon. With a lethargic global economy in general, I can't see that sort of growth in trade happening for a while.

All for now,

Brad Skelton

The Shipping Bloke