"We finally see that the consolidation and restructuring in the sector is having an impact," states Shereen. As a result of the constantly falling rates, shipping companies have had to cooperate more. "Scale is crucial to cut costs and offer services to our customers in a sustainable way." This is why the maritime sector has ended up in a downward spiral. "You need to reduce costs, so you need bigger ships, but then the capacity increases and this puts pressure on prices. We were trapped in a vicious circle. We have seen concrete steps taken in 2016 to address this imbalance. "It was mainly on the trade between east and west where these problems played the biggest role, but their effects have seeped through to the reefer segment.
Overcapacity in reefer
"In the last few years, we saw that capacity was greater than the demand," continues Shereen. "With the arrival of big ships, we saw two effects." In the first place, the ships in the middle class were transferred to the reefer segment, which made reefer vessels increase in size and have a greater capacity for the containers. Additionally, there was an increase of demand in this segment. "We estimate that the capacity increased by five percent, while the market grew by two to three percent." As a result, there has been some overcapacity in the last few years. The total reefer market handles a volume of 9 million TEU. In recent years, the market grew by the aforementioned two to three percent, but this growth was actually greater last year. According to estimates from Maersk, the market recorded a 4 to 4.5 percent growth, and this growing trend is expected to continue this year.
The bankruptcy of the South Korean shipping company Hanjin came as a big shock for the sector. Shereen compares it with the bankruptcy of Lehman Brothers in 2008, which shook the ground under the feet of the financial world. "It was a wake-up call for the industry," she explains. "The danger is always there, but we did not see something like that happen before." For the reefer market, the impact was not that big, as the South Korean firm did not have a big share in this segment.Acquisition of Hamburg Süd
The Danish shipping company is still the biggest ship operator worldwide, accounting for a market share of 15.3 percent. Second in line is the Mediterranean Shipping Company, which controls 13.6 percent of the market. In 2015, the two leaders signed an agreement to work more closely together. This comes to, for example, the sharing of vessel capacity. Besides the two leaders, Hyundai Merchant Marine also has a partnership with this coalition.
The announced acquisition of Hamburg Süd by Maersk is still underway. If the competition authorities approve the acquisition, the deal could officially become official this year. "We want to increase the scale in order to reduce costs and provide better services to our customers," explains Shereen Zarkani. For now, there won’t be any changes in the state of affairs. After the announcement came, there were fears that Maersk would get its hands on too much of the reefer market, especially on the north-south routes. It is up to the authorities to make a decision in this regard..
Growth in Asia
Maersk does not seek a full merger between the two companies. "Hamburg Süd is a strong and respected brand in the reefer market. If the deal goes through, our plan is for both companies to operate independently from each other. "The synergy is mainly pursued behind the scenes. For the customers, Maersk and Hamburg Süd will continue to operate independently; however, as a result of the merger, they will enjoy a wider range of ports and have access to more routes. "That means there will be more opportunities to ship products, which is good news for for fruit and vegetable exporters."
For the coming year, the reefer market is expected to perform better than in the last two years. The strongest growth was observed in the Asian market. "We see a growing trend in the demand for food, especially from Asia." The import flow is seen to be coming from both Latin America and from South Africa and Europe. "That's the driving force behind the growth in this market, which results in a slightly more positive picture for the coming year."
Oil price slows growth down in Africa
Growth in the market does not necessarily mean that exports to the traditional markets will be affected. "In Europe, we are used to having access to a wide range of fruits and vegetables that are available all year round, and that will not change. The traditional markets will not change; these are stable. The growth comes from Asia, where the middle class and the population are growing. "Other continents show a less clear picture. Latin American countries import little and are oriented more towards exports. Growth in Africa is poor, partly as a result of low oil prices. That has a major impact on economic growth, especially in West Africa. The impact of low oil prices is also taking a toll on the Middle East. "We see for example that the governments of the Gulf States are spending less, which affects consumption."
New reefer containers
To keep up with the growth in the market, Maersk has invested in 45,000 new reefer containers over the past two years. It currently has a fleet of 270,000 reefers. The investment served, on the one hand, to expand its capacity, and on the other to ensure the replacement of older containers. The average age of the reefers decreased to an average of 7.9 years, with the average age of reefers in the market being 12 years according to the latest Drewry Reefer Shipping Report. The containers are all equipped with Remote Container Management (RCM). With this technology, the container becomes a digitally connected device transmitting data in real-time, including, for example, the temperature in the container during the trip. If the temperature deviates too much from the set temperature, the container automatically raises an alarm. The data and the alarms used to be exclusively visible for the operator, but in the third quarter this this year Maersk is planning to extend this unprecedented visibility to its customers. "The big advantage of this system is that we can immediately take action if something happens." Maersk may, for instance, get in touch with the client if the ripening in a container of bananas goes too quickly or the fruit suffers damage. "We can then decide directly whether the container is shipped to another destination or must be returned to the exporter. Thus we contribute to reducing waste."
More information:
Maersk
Shereen Zarkani
shereen.elzarkani@maersk.com
www.maersk.com