The Terminal Operations Conference & Exhibition
TOC 99

Genova
1-3 June 1999

TRANSHIPMENT
VS
DIRECT PORTS

NICOLAS SARTINI
Vice President
East West Trades
CMA / CGM

TRANSHIPMENT VERSUS DIRECT PORTS

To illustrate this topic, I will focus on the Asia / Med trade.

It is the major trade where the Med is concerned and it is also one where CMA is deeply involved.

Although speakers are strictly forbidden to advertize too openly about their own companies, I cannot resist mentionning that CMA is the leading carrier from Asia into the Med and that CMA is also the carrier offering the most comprehensive coverage with its own operated vessels in the Med. Not less than 36 ports are served directly including some fascinating places like Misurata in Lybia or Poti in Georgia.

The Med is a very interesting battlefield to study as the options available for liner operators to serve this market are numerous.

This is linked to geography, Med is a transit area between Asia and North Europe, this route being one of the dominant worldwide trades.
Many large vessels are exiting Suez Canal are proceeding to either North Europe or US East Coast via the Med. Coasts are close and it is tempting to make a stop-over at luring ports.

Looking at the patterns of services, it appears that Med from Asia can be served in 5 different ways:

• classical end-to-end service calling directly at West Med ports
• integration in a pendulum service linking Asia and US East Coast with direct calls
• wayport en route to North Europe with direct calls in West Med
• wayport via Hub port en route to US East Coast
• wayport via Hub port en route to North Europe

All configurations exist and some operators are even making complex combinations between the various options in order to offer the best possible service package.

What is extremely interesting in particular is that the two major liner operators in this World are radically adopting opposed strategies.

I am refering to Maersk on the one hand and to Evergreen on the other hand.

Maersk strategy has been to develop the utilization of mega hub ports namely Algeciras and Gioia Tauro in which it has demonstrated its long term commitments by making investments.

These Terminals are then served by their mammoth vessels of 6000 teus operating on trunk lines, sometimes called conveyors.

West Med ports are snubbed by these vessels and get served by either feeder vessels or liner vessels of more modest dimensions.

On the contrary, Evergreen is faithful to the traditional approach of serving at the Med service in an end to end service. All major ports are called at directly including Trieste although it requires a major deviation.

If two shrewd operators are able to adopt an antagonistic approach and still be successful, surely that options have their own merits which bring specific tailor-made answers to their advocates.

Let us try to analyse those merits.

1) The traditional approach

In the so-called traditional approach the questions to be answered are simple:

• what port deserve to be served directly?
• in what order?

In the West Med, it appears that the remaining contenders or direct calls are few:

• Barcelona or Valencia in Spain
• Fos
• Genova or La Spezia in Northern Italy

Naples or Livorno appear to be out of this race.

How to select between these ports?

Technical constraints are obviously met. These ports offer the necessary infrastructure (quay length, draft, sufficient cranes...) to accomodate the vessels presently serving the Med (3000/3500 teu vessels).

The decisive factors will be local cargo volumes and volumes which can irrigate the hinterland. This process of selection when it comes to the Spanish and Italian duets often lead to epical fight within consortium.

Volumes will be put in relation to deviation costs and port expenses. As the table will show West Med ports are not cheap.

Between terminals, berth window guarantees and operational productivity will be often outweighed by cost factors.

No need to elaborate on the benefits of calling directly at West Med ports: as long as one line, or an alliance of lines, has sufficient cargo volumes to pay for the port expenses and the deviation, then nothing can be superior than the direct product that will be offered.

2) The hub approach

Maersk pattern is the opposite to Evergreen's.

Three services originating in Asia are used, calling at two different hub ports namely Algeciras and Gioia Tauro.

Deviation from the main route for the ocean vessels is limited to a few hours.

From the two hub ports, the cargo is distributed by feeders and liner vessels to the final destinations.

Fro West Med ports, Maersk is combining with its West African and American services. No additional vessels are used but existing space available on existing tonnage is optimized.

By doing so, no feeder cost is incurred. Transhipment cost can be put against the saving in slot cost which is derived from the utilization of mammoth vessels on the trunk lines.

An additional benefit is offered by the possibility of making a double-dip utilization on the main line vessel. A slot used from Hong Kong to Genova freed in Gioia Tauro can be re-used to carry a box from say Istanbul to Rotterdam.

The option of serving the Med in transhipment as it can be seen from the example of Maersk can only be economically justified for a line with enough crossing services which allow for containers to be served at zero feeder cost.

Serving the Med ports with a transhipment service using common feeders is not a competitive option from the cost aspect in the current environment.

It is obvious that with the current Eastbound freight levels at say USD 200/20' from Genova to Hong Kong, once you have paid USD 100 to a feeder operator and USD 100 to a hub operator there is not much left to pay for the main line vessel.

It can be an option in less competitive trades where there is still a margin in freight rates.

The pattern used by Maersk requires a total control over terminal operations and a clockwork vessel scheduling.

It is therefore reserved to a few liner operators only who have the required number of complementary loops and, importantly, the capacity to master their cargo flows.

THE EMERGING PATTERN TO SERVE THE MED

In the globalisation race, all lines are compelled to serve all ports. All ports will not be served in the same way.

From the above examples, the emerging pattern to serve the Med can be established:

• Direct calls for the West Med remains a must
• Calls at super hub for relay to "adjacent markets" are necessary
• A call at one single hub mayh not be enough

For West Med, the direct call issue has already been discussed.

Besides West Med, the Mediterranean bassin offers some of the few remaining "frontier" markets where containerization can still progress.

Reference is made here to Black Sea, East Med and North Africa. All these markets are fragmented. Ports are still underdeveloped and sometimes very expensive. Many of the ports require geared vessels. Others can even still not handle 40'.
Direct calls cannot be justified yet and will not be in the near future.

These markets can only be served by transhipment with either common or dedicated feeders. As a result lines still receive premiums on freight rates for their service.

It can happen that a line will be calling at more than one hub port in order to serve the related markets. This is done in order to be close to the respective markets. This explains the success of Damietta or Port Said which are ideally located to serve East Med.

In one case, Maersk is even calling at four hub p0orts on one of its services when it is only calling at two direct ports.

It is interesting in this respect to look at the requirements of lines when selecting a transhipment hub.

WHAT DOES A LINE REQUIRE FROM A HUB PORT?

• Minimum deviation from the main route
• Good geographical location to offer weekly shuttles to feeder markets
• USD 50 per full cycle (TOC 98)
• Hinterland market availability
• Cheap port expenses for multiple calls
• Rail connections to inland Europe
• Immediate access to berth and cranes
• High productivity (above 80 move per hour for mother vessels)

This shopping list is so exhaustive that not a single hub port is yet able to offer it all. Lines will have to arbitrate between these priorities.

These criteria can only be met by a few mega hub. Still, here and there, a line will try to innovate by calling at a "niche hub": COSCO in Naples, MSC in Piraeus or ZIM at Haifa.

COMMON FEEDERS OR CONTROLLED FEEDERS?

Once the decision has been taken to serve a port by transhipment then remain one more issue to resolve: common feeder or line operated feeder?

What will guide the decision are basic considerations:

• Cost first
• Commercial impact

The pattern here is also quite transparent: the new entrants will use common feeders where they will benefit from competitive costs but will be entirely in the hands of small operators. They will have no control whatsoever on their shipments and will be faced with problems of space, congestion ....

The more established lines will be operating their own dedicated feeders. By combining their volumes originating from various origins they will be able to use large feeder vessels and beat in terms of costs the feeder operators.

In addition, they will often be able to take advantage of their North European / East Med service which will fit into the mesh.

On top of this, they will be able to keep control of their flows and have the flexibility of immediately adjusting to what are still volatile markets.

This Club of mature players includes people like P&O Nedlloyd, Maersk or CMA.

If I may, for a short while, I would like to take CMA as an example and use one map to illustrate the coverage which CMA has achieved. It gives a good idea of the combinations which can be elaborated. (see map)

The existing pattern can be modified in time. The very interesting Med market to follow in the coming years will be the Adriatic. There a couple of direct callers are still resisting against the transhipment operators. It will really be interesting to see what happens when cranes in Taranto will start moving containers.

THE SHIPPER'S POINT OF VIEW

The know how of liner operators and the intrication of their services are such that many shippers would be surprised to hear that the container they have given to Maersk for Hong Kong / Fos is in fact transhipped in Algeciras or Gioia Tauro.

The strength of this company is that the shippers no longer care about the routing as they are simply confident that their cargo will reach its final destination on time.

This is fine. However, it should be known that in that particular case, the line will incur additional costs to serve this particular port.

In times where lines are looking for cargo to fill their increased capacity, shippers are safe.

From time to time however, vessels are becoming tight in space, lines operating transhipment services will either look to recovering their additional costs or restricting the acceptance of cargo from feeder ports.

Shippers should be aware of that and in their wise way of conducting their business, they should make sure that there is always a direct line to serve their own ports.

When that ceases to be the case, then for sure, their freight costs and their competitiveness to sell their goods will be hampered.

This could happen for instance to the French shippers using FOS to send shipments to the US East Coast.

This type of protective attitude should also be kept in mind of Port Authorities and Terminal Managements. Losing the status of base ports immediately leads to a reduction in volumes. Once your are left out of the race then you cannot catch up again. Some ports on the Tyrrenean cost of Italy are aware of this.

THE MEDITERRANEAN VISION

Being a liner operator based along the shores of the Med (CMA Head Office is in Marseilles), we would dream to see the Med ports become the California of Europe.

What difference between Marseilles and San Francisco?

What difference between Genoa and Los Angeles?

Med ports could be the gateways to Paris or Frankfurt in the same ways as Los Angeles and Oakland are those for Paris, Texas or Frankfurt, Indiana.

For a service plying the Asian route there is exactly seven days to save by turning in the MED rather than extending to North Europe.

This represents a saving of one vessel i.e. several millions of dollars per years.

There is a long way to go but we keep this idea as a long term vision.

The major obstacles are well known:

• the infrastructure is suffering from bottlenecks (railroads ...)
• high land costs are more than offsetting the vessel economies
• there are strong natural historic hinterland ties to/from North European ports
• there are established / reliable inland systems to/from North European ports

It will be CMA policy for instance to support the initiatives of Med ports and Terminals where they will be promoting intermodal service from these ports to Central Europe.

To conclude I would like to propose the question that should be discussed in TOC 2000: do the mega hub ports of today have the muscle to become the direct ports of tomorrow?

ASIA / MED VOLUMES

		%		number of ports
West Med	Spain	15%		3
	France	15%		1
	Italy West	20%		6
	Italy East	10%		4
	Total		60%
East Med			25%	10 / 15
North Africa			10%	10
Black Sea			5%	5 / 10

ASIA / MED

• classical end to end service calling at West Med ports
  Evergreen, CMA, Grand Alliance, New World Alliance
• wayport en route to North Europe with direct calls in West Med
  MSC
• integration in a pendulum service linking Asia and US East Coast
  COSCO, United Alliance
• wayport via Hub port en route to US East Coast
  Maersk Sealand, Grand Alliance
• wayport via Hub port en route to North Europe
  Maersk Sealand, CMA

ASIA / MED
TYPE OF COVERAGE

Alliances	Type of service	Base ports	Hub ports	Size
CMA	WAYPORT TO N. EUROPE (HUB)	NO	MALTA	1800
CMA / NORASIA	END TO END	BARCELONA / FOS / GENOA / NAPLES	MALTA / DAMIETTA	3500
CMA / NORASIA	WAYPORT TO N. EUROPE (HUB)	NO	MALTA	4000
COSCO	PENDULUM TO US EAST COAST	BARCELONA / FOS / GENOA / NAPLES	NAPLES	3000
EVERGREEN / L. TRIESTINO	END TO END	VALENCIA / BARCELONA / FOS / GENOA / TRIESTE	GIOIA TAURO	3000
EVERGREEN / L. TRIESTINO	WAYPORT TO N. EUROPE (HUB)	NO	GIOIA TAURO	2700
GRAND ALLIANCE	END TO END	BARCELONA / FOS / LA SPEZIA	MALTA / DAMIETTA	3500
GRAND ALLIANCE	PENDULUM TO US EAST COAST (HUB)	NO	MALTA	3000
K-LINE	WAYPORT TO N. EUROPE	NO	PORT SAID	3500
MAERSK / SEALAND	PENDULUM TO US EAST COAST (HUB)	NO	ALGECIRAS / GIOIA TAURO	3000/6000
MAERSK / SEALAND	WAYPORT TO N. EUROPE (HUB)	NO	ALGECIRAS	6000
MAERSK / SEALAND	WAYPORT TO N. EUROPE (HUB)	NO	GIOIA TAURO	4000
MSC	WAYPORT TO N. EUROPE (DIRECT)	FOS / LA SPEZIA	PIRAEUS	3500
NEW WORLD ALLIANCE	END TO END	BARCELONA / FOS / GENOA	PORT SAID	3000
UNITED ALLIANCE	PENDULUM TO US EAST COAST (DIRECT)	VALENCIA / FOS / LA SPEZIA	GIOIA TAURO	3000
ZIM	END TO END	TRIESTE	HAIFA	2500

THE MED CLUB

Direct ports league	Valencia versus Barcelona Fos Genova versus La Spezia
Close to relegation	Livorno / Trieste
Super Hub Club	Algeciras Gioia Tauro Malta
Niche Hubs	Haifa Damietta Piraeus Port Said Naples
Transhipment ports	All other Med ports

WHO IS WHERE?
BASE PORTS IN WEST MED

	VALENCIA	BARCELONA	FOS	GENOVA	LA SPEZIA	NAPLES	TRIESTE
		APL	APL	APL
		HYUNDAI	HYUNDAI	HYUNDAI
		MITSUI	MITSUI	MITSUI
		YML	YML	YML
		CMA	CMA	CMA		CMA
		NORASIA	NORASIA	NORASIA		NORASIA
		COSCO	COSCO	COSCO		COSCO
	EVERGREEN	EVERGREEN	EVERGREEN	EVERGREEN			EVERGREEN
	L. TRIESTINO	L. TRIESTINO	L. TRIESTINO	L. TRIESTINO			L. TRIESTINO
		HAPAG LLOYD	HAPAG LLOYD		HAPAG LLOYD
		OOCL	OOCL		OOCL
		P&O NEDLLOYD	P&O NEDLLOYD		P&O NEDLLOYD
		NYK	NYK		NYK
		MISC	MISC		MISC
	CHOYANG		CHOYANG		CHOYANG
	HANJIN		HANJIN		HANJIN
	UASC		UASC		UASC
	DSR SENATOR		DSR SENATOR		DSR SENATOR
			MSC		MSC
TOTAL
LINES	6	14	19	9	10	3	3
ALLIANCES	2	5	7	4	3	2	2

WHO IS WHERE?
HUB PORTS IN MED

	ALGECIRAS	MALTA	GIOIA TAURO	PIRAEUS	DAMIETTA	PORT SAID	HAIFA
							ZIM
		CMA			CMA
		NORASIA			NORASIA
						K-LINE
			EVERGREEN
			L. TRIESTINO
	MAERSK		MAERSK
	SEALAND		SEALAND
		HAPAG LLOYD			HAPAG LLOYD
		OOCL			OOCL
		P&O NEDLLOYD			P&O NEDLLOYD
		NYK			NYK
		MISC			MISC
				MSC
			CHOYANG
			DSR SENATOR
			HANJIN
			UASC
						APL
						HYUNDAI
						MITSUI
						YML
TOTAL
LINES	6	14	19	9	10	3	3
ALLIANCES	2	5	7	4	3	2	2