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International Shipping News

Leading Boxship Operators Welcome Expanded Suez Canal

Boxship Operating Heavyweights Welcome Expanded Suez Canal (2)

Danish container shipping giant Maersk Line and French carrier CMA CGM have welcomed yesterday’s official inauguration of the expanded Suez Canal.

The Suez Canal accounts for roughly 7.5% of world sea trade and container vessels account for over 50% of the canal’s tonnage passage, according to Maersk Line.

The world’s largest container line says that with more than 1,400 transits in 2014, the company contributes with 20% of the container transits, and virtually all Maersk Line’s Asia-Europe cargo goes through the Canal.

”The extension will enable larger vessels to transit, benefitting not only the shipping companies, but also our partners and world trade as a whole,” said Claus V. Hemmingsen, Maersk Group representative, who participated in the official opening of the Suez Canal along with COO of Maersk Line, Søren Toft.

Boxship Operating Heavyweights Welcome Expanded Suez Canal (3)
CMA CGM had an important role in yesterday’s opening ceremony, with two of its vessels -the CMA CGM Laperouse and the CMA CGM Titan – leading the vessel procession during the inauguration.

The CMA CGM Group, the third largest container shipping company, has 11 of its main shipping lines transiting by the Suez Canal.

637 CMA CGM vessels sailed the canal in 2014. 700 container ships, with a capacity that can reach 18,000 containers each, should be transiting the Suez Canal in 2015.

A bigger, better Suez Canal

But is it necessary?
Aug 8th 2015 | CAIRO | From the print edition
AS A feat of brawn it is impressive. In just one year, a third of the time engineers wanted, Egypt has shifted enough sand to allow more and bigger ships to pass more swiftly through a crucial artery of global trade. As a political stunt it is big, too. Since coming to power in July 2013 President Abdel-Fattah al-Sisi has offered an unspoken bargain: in exchange for shrinking political freedoms he would bring stability and progress. Small wonder his government declared a holiday for the lavish opening on August 6th of the New Suez Canal, as it dubs its project; to bolster pride in the achievement, its religious-affairs ministry instructed mosque sermons to cite the Prophet Muhammad’s digging of a trench to defend Medina from attackers.

In economic terms, however, the expansion of the Suez Canal is a questionable endeavour at a time when the government is struggling to provide adequate services to its citizens. True, the channel is a significant source of revenue. Last year it pumped $5.5 billion into an economy weakened by years of turmoil. But both this sum and the number of ships transiting the canal have been flat since 2008.

Egyptian officials claim that the $8.2 billion project, which expands capacity to 97 ships per day, will more than double annual revenues to some $13.5 billion by 2023. That, however, would require yearly growth of some 10%, a rosy projection given that in the entire period from 2000 to 2013 world seaborne shipping grew by just 37%, according to UNCTAD. A recent forecast from the IMF suggests that in the decade up to 2016 the annual rate of growth for global merchandise trade will have averaged 3.4%.

Before its expansion the Suez Canal was operating below its capacity of 78 vessels a day. It could already handle all ships except the very biggest oil tankers. By the estimate of one Egyptian economist, the maximum growth of revenue that the new dredging now allows from the passage of slightly bigger oil tankers amounts to just $200m a year. Boosters say more ships will flock to the canal because new bypasses permit faster two-way traffic. Economists counter that for ships that already save as much as ten days at sea by using Suez instead of sailing around Africa, a few hours less transit time through the canal will make little difference.

One clear plus for the debt-strapped Egyptian government is that the project is domestically financed: thousands of Egyptians last year snapped up nearly $9 billion in special investment certificates paying 12% interest. The downside for punters is that they are in local currency, in a country where inflation is currently running at over 10%. But there may be another long-term plus. Egypt’s government plans to turn the whole canal zone into a giant logistical, ship-servicing and manufacturing hub. If that ambition comes true, mosque-goers will truly take heart from the government’s scripted sermon which divines “useful lessons from the Prophet’s example of innovative leadership, among them the unity and continuity of command, mutual love between the commander and his soldiers, and wariness of naysayers.”

Source: www.economist.com

 

Should shippers sign binding contracts? New standard container contract is intended for small and medium shippers

Drewry_Supply_Chain_Advisors 290x242.In April, the international shipowners’ association Bimco and the Global Shippers’ Forum published a standard container contract for shippers and carriers.Because container shipping is often transacted without binding contracts, this is an interesting initiative. Drewry has advised shippers on carrier contracts and we see that the largest
shippers do have detailed and well-crafted annual contracts with carriers or forwarders, but the majority of small and medium exporters and importers outside the US often work on the basis of mere rate and transit time quotations (for example via request for quotation or email), not formal contracts. So, can the Bimco/GSF standard contract provide more guarantees and a better framework to work with ocean carriers than the current informal agreements used by many?Comparison of contract terms between different types of shipper-carrier agreementspic1Any shipper doing business with the US is already familiar with the US system of service contracts. The Bimco/GSF standard contract is close to a basic US service contract, but with two differences:
  • Whereas the US service contract must specify either a minimum volume of containers or a minimum portion of containers, the Bimco/GSF contract allows only a minimum volume (“state number of TEUs, if left blank, then this contract shall be null and void”).
  • Whereas the US regime makes penalties for nonperformance optional, the Bimco/GSF contract has compulsory penalties for non-performance (see table).

Therefore, in Drewry’s opinion, the Bimco/GSF contract is more binding and has more teeth than both the typical email or RFQ response / rate quotation based informal agreement and a basic US service contract. Performance levels and remedies, such as liquidated damages, are among the most contentious clauses in shipper-carrier contracts.

In Drewry’s opinion, the Bimco/GSF contract does not give equal treatment to the shipper and the carrier concerning penalties in case of non–performance by either; this is a disadvantage. Other standard clauses, such as the requirement that the shipper gives the carrier an agreed number of days of notice of shipments to be carried, is a constructive approach, as it can help carrier planning and reduce the risk of over-bookings or containers being left behind.

The new standard contract form is a good starting point, but Drewry advises shippers and carriers to amend and expand it to include the service requirements and other terms. After all,
every shipper is different and the standard contract form cannot cover these different needs.

Another practice which could justify a new contract is indexlinked container contracts. Drewry is seeing the number of these contracts increase fast. Overall, Drewry is in favour of more formal contracts with clear, agreed performance levels and Key Performance Indicators, a topic at the latest best practice forum of the Drewry benchmarking club.

Watch this space for further changes in this area.
Source: Drewry Supply Chain Advisors

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