Steaming ahead

Signs of economic recovery are on the horizon for German shipping line Hamburg Sued, which announced this week that it had moved more containers during the first months of 2010 than it did before the 2009 recession.

Hamburg Sued announced that container traffic from January-March 2010 was three percent higher than it was during the same months of 2008, but added that overcapacity in the shipping industry had forced prices down in the wake of the global economic downturn.

Joachim Konrad, deputy chairman of the company's executive board, said the downward pressure on shipping rates would persist until global productivity picks up in 2012 or 2013.

"In contrast to capacities, freight rates are far from recovering to their pre-crisis level," he told the dpa news agency.

The international financial crisis saw global container traffic drop 15 percent in 2009. Hamburg Sued managed to limit the contraction of its freight volumes to 13 percent by cutting rates.

The price cut strategy saw the line enter loss-making territory as turnover plunged 28 percent to 3.2 billion euros (US$4.2 billion). The company responded with a massive savings program, but kept its 4,800-person workforce intact.

The Oetker Group – the parent company of Hamburg Sued – was hit harder. It expects to return to profitability this year but did not provide any further details.

Europe-Asia routes vital

According to Eric Heymann, senior economist at Deutsche Bank Research in Frankfurt, overcapacity is a cyclical problem in container shipping because it takes several years for shipyards to build and deliver new ships. Companies which place an order during a boom sometimes get their ships during a bust.

"The economy as a whole is certainly tending towards improvement in all countries," Heymann told the Deutsche Welle. "While there are always risks in the market, we're expecting global economic increases of double-digit percentages this year. Naturally that means increased demand for container shipping."

But as long as the overcapacity lasts, container shipping lines will have to maintain financial buffers, focus on regional routes and balance the number of ships they own against those they hire on contract, according to Heymann.

"The bottom line is that – with this increased capacity – pressure on prices will at least remain significant. Asia is becoming more important, and so there is more demand on routes between Europe and Asia now," he said, adding that routes between Europe and the United States have become less vital strategically.

'Slow steaming' reduces costs

An innovative way of dealing with overcapacity and cutting costs at the same time is so-called "slow steaming."

Reducing the speed at which ships travel keeps them in transit longer and makes them much more efficient. If a medium-sized ship carrying 4,000 containers is slowed from 24 to 22 knots, its fuel oil consumption drops from 130 to 80 tons per day, Heymann said.

The practice means companies have to spend more on sailors who spend longer periods at sea, but fuel saving easily offset this expense. Hamburg Sued has had to deploy more ships to meet all its scheduled obligations while "slow steaming"- but the ongoing overcapacity in the sector means this is easily achieved.

Container shipping companies "have learned that these cycles exist in their sector," Heymann said. "Those which survive a crisis as deep as this one without any significant financial damage will then naturally have a chance to profit again."

Hamburg Sued operates about 100 ships with a combined capacity of approximately 300,000 containers. The company transported 2.33 million containers in 2009, and 2.67 million in 2008.

Author: Gerhard Schneibel
Editor: Sam Edmonds