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Container volumes expected to fall

Container volumes expected to fall
In a corner of APM Terminals' container terminal, the presence of lifeboats, large parts for industrial pumps and other odd-shaped cargo awaiting loading embody the problems engulfing the sector.

In a corner of APM Terminals' container terminal, the presence of lifeboats, large parts for industrial pumps and other odd-shaped cargo awaiting loading embody the problems engulfing the sector.

In a corner of APM Terminals' container terminal in the Port of Rotterdam, the presence of lifeboats, large parts for industrial pumps and other odd-shaped cargo awaiting loading embody the problems engulfing the sector. The outsize items - too big to fit in a normal shipping container - would never have found space on the packed container ships of two years ago, explains Hans van Kerkhof, the terminal's director. But unprofitable container lines and underworked ports are now grateful for the extra revenue.

RotterdamAP Moller-Maersk is one of hundreds of terminals globally struggling to cope with the worst year in the sector's 53-year history.

Container volumes are expected to fall by 10 per cent year-on-year. In the previous worst year in 1982, the sector reported growth of 4.6 per cent.

The collapse in volumes has led to a scramble by the big four container terminal operators - Hong Kong's Hutchison Ports; Singapore's PSA;DP World, a subsidiary of troubled parent Dubai World; as well as APM Terminals, part of Denmark's AP Moller-Maersk - to scale back or cancel expansion projects, improve efficiency and cut costs. Kim Fejfer, APM Terminals' chief executive, says that until the boom ended just over a year ago shipping lines' main concern was to secure the capacity to handle soaring demand.

"They asked for high berth productivity, high service levels, high flexibility and maybe price was still important but less so," says Mr Fejfer.

The challenge now facing the sector is how to successfully switch focus from expansion to cost control. "The demands from container lines now are much more focused on low price and far less on flexibility," says Mr Fejfer.

Some of the worst-hit ports have been where a fall in volumes has coincided with the opening of expansion projects planned during the boom, which has encouraged cash-strapped container lines to lean even more heavily on terminal operators to push prices down.

The worst-affected countries are South Korea and China, particularly the ports around the Pearl River delta.

"There has been a downward pressure on tariffs and volumes at the same time," says Mr Fejfer, adding that other ports are facing similar pressures.

Rotterdam has suffered volume falls because the economic crisis in Europehas sharply reduced their demand for manufactured, containerised goods. But the Dutch port has the advantage of handling mostly origin-destination traffic.

Yet many ports in developing regions such as Africa and South America are still showing modest growth.

"At least in the developing world growth is not negative," says Mohammed Sharaf, DP World's chief executive. "It has slowed down but there is still growth."

In contrast, ports such as Singapore, that mainly handle trans-shipment business - traffic moving between different ships - are in a weaker position, according to Neil Davidson, ports analyst at London-based Drewry Shipping Consultants. Shipping lines can more easily swap between trans-shipment ports or change their routes to cut out trans-shipment.

PSA, with its home base in Singapore, and APM Terminals, many of whose terminals are used by its sister company Maersk Line, both have significant proportions of transshipment. DP World and Hutchison have higher proportions of origin-destination cargo.

"Terminal operators who have a greater exposure to trans-shipment will be under greater pressure to soften their prices," says Mr Davidson.

However, terminal operators remain profitable, in spite of assumptions by many observers that they would be crippled by high fixed costs.

Faced with the downturn, terminal operators have been surprisingly adept at taking equipment such as cranes out of use, laying off staff and slowing down expansion projects.

"If the terminal is less utilised, your whole operation becomes more efficient, so your unit cost goes down," says Mr Fejfer.

According to Mr Davidson, terminal operators' profit margins have remained steady during the downturn. Mr Fejfer goes still further. "Your margins can go up because your utilisation goes down."

Yet the presence of only one large ship on the quay at APM Terminals Rotterdam is a reminder that the problems of falling volumes remain real and acute. But there are reasons to suggest the industry will enter the recovery better managed and with better control over costs than it left the boom.

www.TurkishMaritime.com.tr

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