Ro-Ro's Slow Go

Automobile and roll-on, roll-off traffic between the U.S. and the Middle East is in slow recovery mode after falling hard and fast.

The operative word for the recovery is “slow.” According to Business Intelligence Middle East, car sales across the United Arab Emirates have stalled as banks have tightened loan requirements. BMW Group Middle East, which has 14 importers in the region, announced first-quarter sales were down 9 percent compared to the same period last year.

According to the MasterCard Worldwide Index of Consumer Confidence, the Middle East scored 49.9 out of 100, well below the score of 66.4 a year ago.

Exports of new vehicles from the U.S. to the Middle East grew at a stunning pace for the past four years, said Ingar Skiaker, president of Hoegh Autoliners. Capacity was so tight ro-ro carriers ceded exports of privately owned vehicles to the Middle East to container carriers to satisfy the long-term needs of their original equipment manufacturer customers.

Last year’s oil price collapse caused an immediate deep downturn in light vehicle exports to the Middle East. Ro-ro carriers responded by dropping contract liner and charter rates, seeking more project cargo, expanding into new regions and idling older vessels.

“We need to run at capacity and adjust operating costs, all the things that any operator has to do,” Skiaker said.

Hoegh, which operates 70 pure car and truck carriers, recently expanded its Middle East service by adding the Port of Galveston as a load port. Vessels will call at the port twice a month before heading up the East Coast and serving numerous ports in the Middle East.

The service expansion makes sense because the Middle East oil sector depends on suppliers in the U.S. Gulf, and Galveston was already a discharge port for Hoegh. The company operates two sailings per month and may add a third in August.

Like Hoegh, Wallenius Wilhelmsen Logistics, the joint Norwegian-Swedish car carrier, is pursuing heavy and oversize cargo to fill space.

“We’re looking even closer at heavy-lift now to see if there are other openings where we can participate given the contraction of the auto market,” said Christopher Connor, WWL’s president for the Americas region.

WWL, the world’s largest ro-ro carrier, reported its first-quarter operating profit fell 39 percent from the same period last year, to $36.4 million. The company plans to idle as many as 12 vessels this year, about 20 percent of its fleet. Japanese carriers “K” Line, MOL and NYK Line also plan to lay up ships or sell older vessels for scrap.

WWL entered the Middle East ro-ro trade a few years ago and had been increasing its shipments of vehicles and ro-ro cargo since, said John Fellito, the carrier’s executive vice president and deputy head of the Americas region.

As volumes dropped in the first quarter, the carrier reduced its monthly sailings to the region from three to two vessels. The ships originate in Galveston and work their way up the East Coast.

The U.S.-Middle East ro-ro trade has also been hurt by a Saudi Arabian Customs Department ban on imports of cars more than 5 years old. According to Arab News, more than 140,000 used cars were imported into Saudi Arabia in 2008, about 24 percent of all car imports.

WWL is well-positioned to survive the global automotive downturn with a varied cargo mix that includes automobiles, high-and-heavy equipment and other equipment that can’t be containerized. Its fleet of modern pure car-truck carriers and ro-ro vessels with highly configurable deck space enable it to transport any type of rolling stock anywhere in the world.

“Our mix of cargo allows us to find more revenue in ports and better profitability,” Fellito said.

As oil prices rise, orders are increasing for U.S.-made drilling equipment, said Virendra Sehgal, Dubai-based regional director for BDP Project Logistics. Infrastructure and energy projects in Dubai, Kuwait and Qatar are mostly ongoing, though some have been scaled back.

Most energy and infrastructure projects in Saudi Arabia are ongoing, with several put on hold as their costs are re-evaluated, said Colin Clarke, executive general manager of Kanoo Freight, a Dubai-based forwarder.

Kanoo works with several ro-ro carriers that transport rolling stock from North America. The financial meltdown has resulted in widespread availability of once-scarce equipment and an abundance of formerly nonexistent vessel capacity.

“When the project boom was in full swing, you couldn’t get engineers, let alone a piece of steel,” Clarke said.

How far have U.S. automobile exports fallen? Two years ago, Chrysler exported 200,000 cars through the Port of Baltimore; it shipped 160,000 cars last year. This year, the number will be around 20,000, said James White, executive director of the Maryland Port Administration.

Overall, the port expects a decline of about 23 percent in automobile exports this year, from 650,000 in 2008 to 450,000.
“The bottom really fell out in November 2008,” White said. “There was a free-fall for two or three months.”

Other ro-ro cargo, helped by the dollar’s recent decline, is holding up better. Between July 2008 and May 2009, the first 11 months of fiscal 2009, the port’s ro-ro shipments were down 14 percent. Baltimore is the nation’s top ro-ro port and is ranked No. 2 in automobile exports.

The Middle East is a major market for used vehicles from South Florida, said Alberto Cabrera, director of non-containerized cargo at the Port of Jacksonville.

One of the nation’s top ro-ro ports, Jacksonville handled 656,805 vehicles during its 2008 fiscal year through last September, up 7 percent from the year before. But ro-ro is down about 30 percent this year, with the steepest drop-off in exports by U.S. automakers, said Roy Schleicher, the port’s chief commercial officer.

Because automakers book shipments directly with carriers, automotive 3PLs operating in the Middle East mostly provide after-market services, said Matt Brand, head of CEVA Logistics’ global auto business.

Netherlands-based CEVA operates an express network out of Dubai and has close to 1 million square feet of distribution space in the region.

CEVA is expanding its after-market offerings in parts installations and IT services for regional distributors looking to cut transportation costs. Automotive original equipment manufacturers, looking for flexibility in service contracts with suppliers, are asking for lead logistics services, Brand said.
With future oil price increases all but assured and steady regional population growth the Middle East is poised for a nice recovery, even if a return to the boom times of the past few years is unlikely, Skiaker said.

“The market is gradually coming back,” he said.

Contact David Biederman at inexdb@comcast.net.