More a tremor than an earthquake
I'm in Los Angeles these days, where earthquakes are never far from the mind.
So it's in the context of the Richter scale that I viewed the news in late April that Taipei-based TS Lines and Hong Kong-based Emirates Line were forming a strategic partnership. Was this a tremor or a foreshock? More on that in a bit.
The big news when the story broke was that Vikas Khan, the dashing founder of Emirates and a veteran of CSAV Norasia, was stepping down from his role as Emirates' chairman. Coming five months after Khan vacated his role as chief executive to focus on strategic issues for the line, it came to mean to many that Emirates' financial picture wasn't as rosy as the line perhaps portrayed.
I suppose the inclination is to suggest that this is one of the first few dominoes to fall in a year where some carriers are predicted to fail.
But you can also look at it from the flipside ' that TS Lines has made a nice little deal for itself. If you take the two lines' words for it, they will continue to operate as they did, only both lines are now under the control of TS Lines Chairman T.S. Chen.
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To me, that means little in the way of cash spent to secure long-haul routes that greatly expand TS Lines' reach.
The carrier is a significant one in the intra-Asia trade, but it has longed to expand its footprint outside of the confines of that market. In short, it wanted to stop being a niche regional carrier and become a pan-regional deep-sea services carrier. Emirates' services primarily connect eastern Asia with the Indian Subcontinent and Middle East.
This partnership helps them achieve that goal.
Now back to the Richter scale. While the news of Khan's departure and Emirates' assimilation into TS Lines was surprising, it's hardly the earth-shattering news for which everyone has been waiting. It's the 27th-largest carrier joining forces with the 41st-largest carrier. The average vessel size of the joint entity would be about 2,021 TEUs and the lines together own three vessels and charter another 32.
About a 3.7 on the Richter scale if you ask me.
That's not to say the development is insignificant, because it is. Adding Emirates' nearly 24,000 TEUs of capacity to its own 47,000 TEUs would allow TS Lines to effectively jump four places on the global carrier table, taking it well above its intra-Asia competitor, Thai carrier RCL. It would be on the cusp of the top 20 and within shouting distance of joining the big leagues.
Still, it's not exactly Maersk buying P&O Nedlloyd or NOL attempting to buy Hapag-Lloyd. There are carriers that appear to be in precarious positions. CSAV, as has already been documented in this column, is seriously in peril. Others seemingly in danger might only be perceived to be that way because they're in the public eye or subject to analysis by credit rating agencies or market researchers.
At the end of the day, only carriers themselves know what their situation is. And Emirates' must have weighed its options and decided that this strategic partnership ' one in which the company essentially lives on ' was better than waiting a few more months to potentially get picked off by a bigger fish.
Clock ticking for L.A.-Long Beach
There are rumblings in Southern California that the ports of Los Angeles and Long Beach might soon become the largest 'boutique' container complex in the world.
The theory goes that the senior staffs at the two ports have been so tied down with the political and practical issues of implementing their joint clean air action plan that they've had little time to actually address the most important aspect of their business ' cargo.
Only in recent weeks have the ports attempted to lure cargo, realizing that their tower of invincibility isn't so invincible after all. Yes, cargo destined for the 20 million people in greater Southern California will still go through the ports. But there are so many more outlets that exist for discretionary, intermodal cargo destined for inland U.S. points than existed even a few years ago.
When the Panama Canal opens a wider set of locks, scheduled for completion in 2014, the competition will really amp up. It was brought to my attention recently that an interesting race to follow is whether the Panama Canal expansion finishes before the Union Pacific railroad can build its near-dock container yard. That yard is crucial to Los Angeles' and Long Beach's ability to efficiently funnel intermodal cargo out of Southern California.
If that ' and other projects to make the two ports more efficient ' gets delayed, Southern California will have lost another edge. If container and trucking and environmental fees start piling up much further, carriers will use the Panama Canal, Prince Rupert, or even Mexico instead.
A few years ago, 2014 seemed far away, but now there are fewer than five years to go. Los Angeles and Long Beach are on the clock.
Volume losses stabilizing?
In March, some ports started to see a stemming of the proverbial tide in terms of throughput losses. Whether this spring represents the nadir of the container crisis or just a temporary lull is unclear.
But it's interesting that APL, which has been among the most aggressive of carriers in terms of laying up capacity, reported volume declines in March pretty much in step with the amount of capacity they have idled.
As of the beginning of April, APL had idled 24 percent of its 489,343 TEUs of fleet capacity, according to AXS-Alphaliner. For the four weeks leading up to April 7, the line saw container volume drop 22 percent.
For a moment forget that revenue on that volume also dropped 20 percent compared to the same period in 2008. The key point is this: should not APL expect its volumes to be significantly lower with 24 percent of its fleet sidelined?
The volume drops were much higher for the rest of 2009, so the fact that APL's volume fell nearly a quarter with a quarter of its fleet idled signals that things have stabilized, even if only for a little while.