After a brief, recession-driven pause in growth in 2009, global perishable refrigerated trade expanded 3 percent in 2010, and is expected to increase at that level for the next few years, according to a new report by London-based consultant and research analyst Drewry Maritime.
Dry cargo levels plunged worldwide in 2009, but the reefer trade stayed flat, according to Drewry analyst Kevin Harding.
“In 2009, the worldwide reefer trade was static for no reason other than the economy,” he said. “It quickly recovered and began growing again, and we believe it will continue growing.” The worldwide volume for refrigerated goods includes oceanborne cargo, as well as shipments moving by air, rail and highway.
“We are deliberately not being overly optimistic, but we are also consciously not being pessimistic in this trade,” Harding said. “It is clear we’ll see similar levels of growth over the next few years.”
Harding sees another trend gaining momentum: the market share shift in seaborne reefer shipments to container vessels from specialized breakbulk reefer vessels.
Just as reefer volume and demand continues to grow, the capacity of the specialized reefer sector continues to fall as “scrapping of older specialized reefer vessels continues,” he said.
No new reefer ships are on order, according to the report, and an average of 36 reefer ships were scrapped annually from 2008 to 2010. Nineteen were scrapped in the first half of 2011, and Harding said by year’s end the number of scrapped vessels will exceed 2010 levels.
Drewry projects the breakbulk fleet will decline from 691 today to 476 by 2015. The vessels are being scrapped for two reasons: Increasing fuel costs make older, fuel-guzzling vessels expensive to operate, and owners are receiving high prices for the obsolete vessels because of a global demand for steel.
Seatrade, one of the largest specialized carriers in the trade, took delivery of a new vessel early this year and another last fall. Reefer vessel owners also have seen their rates drop from 2009 peaks. Rates in the industry, measured by “cents per cubic foot per 30 days,” vary between time-charters that normally last 12 months and spot market rates.
Only a few “top echelon” vessels usually are placed under 12-month time-charter, mostly by banana companies, Harding said. For those crème-of-the-crop vessels, rates peaked in 2009 at around 100 cents per cubic foot per 30 days. In 2010, the average dropped to 90 cents, about where they are now, he said. The 2009 rates were an industry record; by contrast in 2005, they were in the mid-70s range.
Standard or typical spot market rates for vessels 450,000 cubic feet and above have risen this year over 2010 levels, resulting in a narrowing of the gap between time-charter and spot rates, Harding said.
Spot market rates peaked in 2008 at 72 cents per cubic foot per 30 days. In 2009 and 2010, those vessels earned average rates in the low 40 cents.
“This year, during the first four months of 2011, the spot rates were up significantly, but have fallen back,” Harding said. “They should finish the year in the upper 40s. We’re expecting an increase of perhaps as much as 10 percent.”
By comparison, the average spot rate in 2007 was 70 cents and 66 cents in 2006.
For customers, there is one significant rate difference between containers and reefer vessels: Container carriers impose a surcharge as fuel costs rise, but reefer operators foot the entire fuel bill.
In the past several years, reefer vessel companies increasingly have joined pool arrangements to share marketing and other costs. The pool arrangements were intended not only to lower costs, but also to increase utilization with vessels less often idle because of the cooperative marketing.
The pools seem to be working, he said. “Employment is very high — I wouldn’t say 100 percent because there is always room for improvement, but there are a limited number of ships in layup,” Harding said.
Because the sector is already close to optimum utilization of the fleet, he said the amount of additional cargo the specialized carriers can handle is very low. “It’s definitely a capacity-restricted business,” Harding said.
By default, the new cargo will have to be shipped by container carriers. And, according to the Drewry study, container carriers are preparing for that by adding ever more reefer plugs on new vessels.
Reefer capacity on the world’s container fleet will grow by about 30 percent over the next 2 ½ years, according to the study.
Because of the relative stability of the reefer trade and the relatively high rates compared to dry cargoes, container carriers have made aggressive moves to capture more perishables business in the last several years.
If dry cargo volumes and rates surge again, reefer shippers will not necessarily remain preferred customers, Harding said. “It is definitely recognized that reefer cargo has a lot of cost and risk associated with it, so not all trades will be targeted by the container carriers,” he said. “But with reefer capacity up 30 percent, the carriers will be keen to use it and will be targeting individual trades.”
Combined, the trend toward a smaller reefer fleet, larger container fleet and growing perishables market translates into an inevitable market share increase for the container carriers.
In 2001, perishables shipments were evenly split between the two modes, Harding said. By 2010, about 35 percent was carried by specialized vessels and 65 percent by container carriers.
“In the future, what we’re suggesting is that the modal split will be 22 percent on specialized vessels and 78 percent in reefer containers,” he said.
One small trend emerging is for specialized vessel operators to increase capacity by chartering container vessels. The perishables are packed in containers, but the operation otherwise resembles specialized shipping because the vessel operates in a charter voyage that goes from Point A to Point B without the intermediate port calls and transshipments made by container liner carriers. Because not all container slots have reefer plugs, the charter operators also book containerized dry cargo for the voyage.
“That practice of chartering container vessels for reefer shipments is happening, and I think it will have to increase,” Harding said. “The biggest user of that is Seatrade. They are doing it to service some of their customers when the reefer vessels aren’t available.”
Container carriers have slowed their vessels to use “ultra-slow-steaming” as a way to save fuel. Container lines also increasingly are using hub-and-spoke networks that require unloading and reloading containers. Both practices have added days to shipment times.
“Any reefer shipper wants their cargo to get to market as quickly and safely as possible — at a low cost, of course,” Harding said. “If you transship cargo, there is an inherent risk of problems, and ultra-slow-steaming is just exacerbating the problem. For some shippers, having your goods on a floating warehouse is OK. For perishables shippers, it isn’t.”
Using chartered container vessels is one way around the problem, but Harding said it won’t become a huge factor in the industry. “You’d have to have the economy of scale to make it work,” he said. “It will have to be done in trades where there is sufficient volume to make it worthwhile.”
The banana trade is one example of a market with high volume and year-round production and demand. “It could also work in the Chile market because there is such a huge volume from that country to North America, Asia and Europe,” Harding said. “In that market, a six-month charter could make sense.”
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