Published reports from the Financial Times, Bloomberg and American Shipper report that two high profile ocean container shipping lines, Germany based Hapag-Lloyd and Chile based CSAV, are in talks concerning a potential merger. These discussions had not led to any agreement and both lines were compelled to issue statements indicating existence of these talks. Bloomberg reported that the initial news came from the Die Welt newspaper and later acknowledged by company statements after CSAV shares spiked 27 percent. CSAV itself has lost 86 percent in the past three years according to Bloomberg.
According to rankings from Alphaliner, Hapag currently ranks globally as the sixth largest container ship fleet while CSAV ranks 20th. If both lines merge, the combined fleet would rank fourth globally. Just about two years ago Hapag had merger talks with Hamburg Sud, but those discussion talks broke down.
Hapag-Lloyd became a member of the G6 Alliance in 2012 in an effort to pool multi-carrier capacity on select global routes. On Tuesday, American Shipper issued a newsflash indicating that the G6 Alliance is now planning to expand its cooperation to Asia-United States West Coast and transatlantic trade lanes, pending regulatory approvals.
After many rants regarding proposed rate hikes involving global ocean lines, Supply Chain Matters declared in July that the implications for structural changes involving global transportation were compelling. This latest news of a potential merger of lines should therefore not be of great surprise. One of our upcoming 2014 predictions will call for even more re-structuring of global transportation networks. Manufacturers and retailers will need to continue to keep a keen eye out for the implications to their ongoing sourcing and supply chain strategies.
In the category of what can only be described as bizarre, general, business and social media amplified this week’s incident of a massive cargo plane that landed at the wrong Wichita Kansas airport.
The story has very obvious supply chain related connotations since the modified Boeing 747 Dreamlifter aircraft was actually an integral part of Boeing’s 787 Dreamliner transportation and logistics replenishment network. This aircraft is one of four 747’s modified to haul aircraft body and wing parts between Boeing’s supplier factories across the globe. Readers will recall that the 787 supply chain extends globally with major suppliers in both Europe, Japan and other countries.
The plane was operated by Atlas Air Worldwide Holdings departed New York’s JFK International Airport on Wednesday for its scheduled flight to McConnell Air Force Base, which is adjacent to Boeing’s major aircraft structure supplier Spirit Aerosystems. The aircraft was cleared to land but mistakenly landed at the much smaller Jabara Airport, about 10 miles to the north. Communications between the flight crew and air traffic controllers indicate that the pilots were confused as to which airport the plane had landed. There is another adjacent airport to the south of McConnell. In its reporting of the incident, the Wall Street Journal included excerpts from the air traffic transcript which indicate the pilots initially believed that they has landed at the Beech Aircraft Factory Airport to the south.
In a credit to collaboration and ingenuity, both Sprit and Boeing devised an alternative plan to fly the aircraft from the smaller airport that did not have adequate runway length. Apparently a new flight crew was flown in to pilot the aircraft and achieve takeoff from the rather short runway with no local airport air traffic assistance. A massive modified tug was brought over from McConnell to turn the aircraft around in the smaller runway, but it reportedly broke-down, but eventually made it to Jabara. The aircraft successfully took-off on Thursday afternoon and landed at nearby McConnell to unload its cargo.
In past times, this particular incident would not have gained such global and instantaneous visibility. With so many airports close by to its destination, mistakes can be made. There is no doubt that the flight crew is embarrassed and will be subject to some scrutiny and perhaps punitive measures. However, this new era of round the clock news coverage amplified by the power of social media had the images and byline of a stranded cargo plane noted everywhere, and made this incident even more concerning.
Supply Chain Matters recently echoed newly voiced concerns penned in a Wall Street Journal editorial by noted pilot Sully Sullenberger who questioned whether air cargo crews may perhaps be working excessive hours with important and worrisome signs of fatigue. Luckily, this week’s incident had an eventual positive outcome. Both Atlas Air and Boeing however would be wise to insure that a thorough investigation is undertaken to determine what actually happened and how such a fundamental error actually occurred. This could have had a more tragic outcome.
In our past commentary we asked readers for comments as to whether they were concerned or have observed signs of air cargo pilot fatigue. The same question continues.
The Wall Street Journal reports that the U.S. Federal Maritime Association has taken the unusual step to call for a meeting with its European and Chinese counterparts to scrutinize the proposed alliance of the globe’s top three shipping container lines.
Readers may recall that in June, the three lines announced the intent to establish the P3 Network that pools vessels operated by Maersk Line, Mediterranean Shipping Line (MSC) and CMA CGM among the most traveled global routings. According to media reports, the alliance, if consummated, would control 40 percent of total sea cargo capacity that includes an estimated 43 percent of ocean container shipping from Asia to Europe, 24 percent from Asia to the United States, and 41 percent of trans-Atlantic routings. According to estimates from Drewry, the three subject carriers of this proposed alliance control about one-third of the world’s shipping fleet.
Such an alliance requires the approval by the combination of Europe, China and U.S. regulatory groups. The pact calls for a sharing of capacity among the top three carriers with the biggest container ships, the so-termed Triple E vessels, being part of the shared capacity and routing arrangements. If approved, this alliance is scheduled to go into effect in the second quarter of 2014.
According to the WSJ report, the chairperson of the U.S. Federal Maritime Association called for this meeting because of concerns raised by other carriers and the shipping community as a whole. Such a meeting among all three regulatory agencies is unusual and could occur as early as mid-December. Other concerns relate to the impact on smaller shippers as well as the impact to the other ocean container carriers that are not part of this proposed alliance.
Business network CNBC reports that alliances of shipping lines usually involve the pooling of carrier equipment, typically allowing the carriers to offer more frequent service to more ports. But in the case of the P3 alliance, shipping and trade groups lack specifics about both the potential economic and market impacts. These concerns are focused on a restriction of the supply of shipping capacity which could drive ocean container freight rates higher. The CNBC report quotes a statement from U.S. Federal Maritime Commissioner William Doyle as concerned about reports that a combined fleet of 346 vessels will be reduced to 255 vessels once the P3 alliance is consummated.
Needless to state, the unprecedented joint meeting among all three involved maritime regulators is well-timed and could lead to further clarity as to whether the proposed alliance will meet resistance.
There is yet another incident of a potential major industry supply chain disruption. An early morning fire on Friday ravaged six warehouses at the sugar storage facilities at the Port of Santos, Brazil, paralyzing sugar export operations for weeks to come.
A published report from Reuters and other global media outlets indicates that this fire impacted 6 warehouses operated by Copersucar, igniting 180,000 tonnes of sugar representing 10 percent of Brazil’s monthly sugar exports. Of more concern, these reports indicate that early estimates of the damage could put 10 million tonnes of export capacity offline for six months or more. Copersucar itself represents 47 sugar mills across Brazil and its trading desks are estimated to account for nearly a fifth of the world’s sugar exports.
The fire itself was reported to have started somewhere in the conveyor system that transports sugar among the warehouses and to dock facilities. Reuters cites television footage showing a three-story high mountain of sugar engulfed in flames inside a warehouse that had lost most of its siding and roof to the flames. After about three hours, firefighters managed to contain the fire, but the fire can remain smoldering for days. Four persons were reported injured by this fire.
Today’s published reports from both the Financial Times and the Wall Street Journal point out that Brazil’s sugar harvest was is at all-time high, possibly alleviating concerns of a major supply shortage. However, commodity markets reacted quickly to the news, driving the futures market up 6 percent to near one-year highs, and then settle to a 2.6 percent spike by the close of trading.
There is more concern regarding the transport facilities at the Port of Santos, which were already being logistically challenged by severe congestion. This latest incident is bound to add additional logistical challenges. In the FT published report, a commodities risk management advisor for Archer Consulting indicates a scenario of 8 month to a year before the sugar terminal returns to full capacity.
There is no doubt that logistics and procurement professionals will be scrambling over the coming days and weeks to secure alternative means to ship sugar supplies from alternative ports, which will add additional costs.
There are many food, beverage and other related industry supply chains that rely on sugar as a basic direct or indirect ingredient. Thus, the full impact of this disruption is yet to be quantified and assessed. In the meantime, impacted food-related supply chain teams including sourcing and procurement would be prudent to initiate scenario-based analysis related to either spikes in inbound cost, delays in shipments, or temporary disruption of supply.
Earlier this week, an Opinion column published in the Wall Street Journal was titled “A Tired Pilot Is a Tired Pilot, Regardless of the Plane”. It was jointly penned by the now famous Chesley ‘Sully’ Sullenberger, who piloted a US Airways A350 aircraft to successfully land in New York’s Hudson River saving the lives of passengers, and Jim Hall, former chairmen of the U.S. National Transportation Safety Board (NTSB).
The authors alone caught our eye, but the messages delivered should catch the eye of our supply chain focused reader community as well.
In this editorial, the authors bring to light the current dangers imposed by fatigued pilots. While the U.S. Federal Aviation Administration (FAA) will soon implement long-overdue fatigue standards for pilots for the passenger airlines, these requirements will apparently not apply to pilots of cargo planes. The premise of these distinguished authors is that by excluding cargo pilots, who often fly continuous long inter-continental routes, the mission for making safety the first priority for aviation is compromised. Their most powerful argument: “Whether there are packages or people behind the cockpit door, pilot fatigue exists just the same. And it threatens the lives of pilots and bystanders on the ground alike.”
They argue with reason that the jobs of cargo pilots can be even more tiring than flying a passenger plane, given the tendencies of long overnight flights and the crossing of multiple crossing of time zones. We would add the additional responsibilities of hauling potentially hazardous cargoes and schedule adherence regardless of marginal weather conditions. They remind readers of the recent UPS air cargo accident on approach to Birmingham Alabama that took the lives of both pilots and could have easily resulted in crashing into a nearby populated neighborhood. A further reminder was the 1992 crash of cargo jet near Amsterdam that killed four persons on the plane and 43 on the ground. They question why the FAA cites that a pilot fatigue rule would prevent only one cargo airplane crash in a ten year period, and argue that carriers such as UPS carry insurance coverage of $1.5 billion for a single cargo aircraft accident because of the value of the cargo and the potential deaths of people on the ground, not to mention damage to ground- based facilities.
Obviously, global air cargo carriers have counter-arguments, the most prominent of which would boil down to added regulation drives increased operational costs for carriers and air cargo rates for shippers. They would further remind shippers that adequate carrier policies and safeguards exist to manage pilot fatigue.
However, it would seem that recent evidence warrants a revised perspective from all of the parties involved. The potential for added costs and increased rates should perhaps be balanced with factors for protecting the lives of cargo pilots and the probability of destroyed critical shipments for manufacturers, retailers and businesses.
Image for a moment if a cargo plane fully loaded with Apple smartphones, or with a large shipment of lithium ion batteries were to have a major accident due to pilot fatigue.
It often seems that calls for safety regulation are often more a politically-driven process. Current headlines concerning the 8th day of the U.S. government shutdown are an acute reminder of the current toxic gridlock environment in Washington. It is time to move on to a host of other needs including addressing overworked and unrested air cargo pilots, as well as other transportation related employees.
What’s your view? Are fatigued pilots a concern individually or for your organization?
Global business network CNBC interviewed the CFO of Maresk Line, the current industry leader in global ocean container shipping and the responses should capture the attention of global manufacturers, retailers and their procurement and transportation management teams.
In the interview, Maersk CFO Jacob Strausholm indicated to CNBC Europe interviewers that “the worst is over for the global shipping industry but so are the glory days.” In the view of Supply Chain Matters, that is both good and not so good news, but perhaps not in the context of what readers may be thinking.
By our view, the good news is that the industry is finally acknowledging that the glory days of double digit annual increases in container shipping volumes has come to an end. It is a testimonial that industry supply chains have become much more predictable in forecasting product demand and in more efficient inventory planning.
It was the basis of that inflated optimism that motivated multiple lines to introduce gross over capacity across the industry, while unsuccessfully attempting to extract high tariff rates from shippers. As CNBC notes from its interview, over the next two and one-half years, Maersk alone has plans to introduce into global service 20 new mega-ships, capable of transporting up to 18,000 containers with up to 35 percent less consumption of fuel.
Other competing shipping lines have be compelled to also order new mega-ships that will further continue to come on-line. There lies the not so good news, that in the coming months and perhaps years, a fleet of far larger but more efficient mega-ships may well be competing in a low-growth environment that has more implications for potential industry consolidation. There has already been an announcement of an operational alliance among the top three container lines to pool ship capacity among a collection of key global shipping routes. That alliance has yet to secure regulatory approvals.
Also in our view, these mega-ships that need to leverage high shipments volumes may well be initially deployed in the wrong shipping lanes because of the lack of port infrastructure upgrades to be able to load or unload such ships. Europe alone has yet to recover from the effects of a severe economic downturn and strategic ports could be challenged to secure the financial resources to build and deploy added port processing infrastructure. Similarly in the U.S., the lack of an overall strategic investment plan in upgrading U.S. based port and logistics infrastructure may delay the benefits of these mega-ships. The effects of the global economic crisis have further reinforced labor unions to resist demands for port productivity improvements.
Despite these challenges, an important industry milestone has occurred. The ocean container industry has begun to acknowledge its past miss-steps. The open question however remains that while the shipping industry has acknowledged the end of the glory days, global sourcing shifts and the movement toward moving production closer to the point of consumption may well add continuing challenges.