Genoa, March 2000

NEW CHALLENGES IN THE MEDITERRANEAN.

THE "FLEUR DE LYS" CONCEPT.

A PRESENTATION BY CAP. YIGAL MAOR

ZIM ISRAEL NAVIGATION CO.

CONTENT:

1. INTRODUCTION.

2. PRESENT TRADE PATTERNS.

3. MEDITERRANEAN TERMINALS.

4. THE "FLEUR DE LYS" CONCEPT.

5. CONCLUSIONS.

6. FINAL REMARKS.

INTRODUCTION.

THE SHIPPING MARKET, AS OTHER MARKETS BEHAVE, IS CONTINUOUSLY STRIVING TOWARDS ITS IMPROVED EFFICIENCY, RATIONALIZATION AND HIGHER EARNINGS,

ALL SUBJECT TO DYNAMIC BEHAVIOR OF GLOBAL MARKETS AND THEIR FLUCTUATIONS AROUND THE RELATIONS BETWEEN SUPPLY AND DEMAND.

SUPPLY AND DEMAND IN THE SENSE OF OFFERED TONNAGE AGAINST THE UNSTABLE BUT CONTINUOUS GROWTH TREND IN THE GLOBAL ECONOMICS AND THEIR TRANSPORTS.

THE IDEAS AND THE MODELS IN THE UNENDING AMELIORATION OF THE SHIPPING MARKET ARE DIVERSIFIED IN TERMS OF FINANCE, OPERATIONS AND LOGISTICS.

THE FUTURE HIDES MANY SURPRISES AND RENOVATIONS, MATERIALIZING SOME VISIONS AND ELIMINATING OTHERS.

IT IS OBVIOUS THAT FUTURE POSSIBILITIES ARE QUITE ENDLESS.

THE DIVERSITY OF PATTERNS AND SHAPES, WITH WHICH SHIPPING SERVES THE GLOBAL ECONOMICS, DEMONSTRATES THE VARIETY OF SOLUTIONS AVAILABLE AND THEIR FUTURE.

THERE IS NO ONE RIPOSTE OR WITTY MODEL WHICH CAN SOLVE, UNIFY OR CHANNEL THE SHIPPING ACTIVITY TO ITS OPTIMAL PERFORMANCE AND ANY EXISTING MODEL IS SUITABLE TO THE UNIQUE DEMANDS OF ITS CARRIER.

THE CONCEPT THAT IS SUGGESTED TODAY, AS FAR AS I KNOW, IS NOT YET IN PRACTICAL OPERATION BY ANY OF THE CARRIERS.

ALSO, THIS MODEL OPERATES ON THE EDGE OF PRESENT KNOWN LOGISTICS AND OPERATIONAL CONSTRAINS.

NEVERTHELESS, SOME CARRIERS ARE OPERATING WITH A MODEL, WHICH RESEMBLES A PART OF THIS CONCEPT SUCH AS COSCO'S NEW MED SERVICE TO WEST AFRICA ETC.

B. PRESENT TRADE PATTERNS.

TODAY'S CARRIERS, MAINLY THE GLOBAL ONES, ARE SAILING IN EAST/WEST AND FURTHER NORTH/SOUTH STRINGS IN DIVERSIFIED PATTERNS BUT COMMON IN THEIR BASE CONCEPT.

JOINT SERVICES ARE CREATING A UNITY OF SERVICES ALONG THE COMMON ROUTES THEY USE, WHILE FINAL NICHE DESTINATIONS OR DIVERSIFIED FEEDING SERVICES ARE ASSIGNING ONE CARRIER FROM ITS PARTNER.

WHILE EVALUATING HOW SOME GLOBAL MARKETS ARE CONNECTED TO ASIA, WE CAN SEE THAT NORTH EUROPE IS SERVED DIRECTLY WITH A VARIETY OF SERVICES CROSSING THE MED.

SOME ARE CALLING A MED HUB OR TWO AND SOME CROSSING, NON STOP, UNTIL THEIR DESTINATIONS.

3 CURRENT ROUTES SERVE THE NORTH AMERICAN EAST COAST:

1. CALLING WEST COAST PORT, AND FURTHER INLAND ROUTING.

2. CROSSING THE PANAMA CANAL PRESENTING AN ALL WATER SERVICE.

3. THE ROUTE VIA THE SUEZ, THE MEDITERRANEAN, AND THE ATLANTIC.

EAST COAST SOUTH AMERICA IS MAINLY SERVED VIA THE CAPE OF GOOD HOPE.

WEST AFRICA, IN SPITE OF THE RECENT DIVERSION OF SOME VOLUME VIA THE MED, IS MAINLY SERVED AS WELL VIA THE CAPE OF GOOD HOPE.

ALL THOSE ROUTES, SERVED, AND ARE STILL FAITHFULLY SERVING, THEIR SAID MARKETS' DEMANDS BECAUSE OF SOME REASONS:

1. DIRECT ROUTES.

2. USUALLY MOST EFFICIENT GEOGRAPHIC ROUTE CONSIDERING RANGES AND VESSEL'S SIZE IN SAID TRADE.

3. ECONOMICAL AND OPERATIONAL BENEFITS ACCORDING TO CARRIERS STRATEGIC CONCEPTS.

4. TRADITIONAL AND CONSERVATIVE PATTERNS CHARACTERIZING THE SHIPPING WORLD.

BUT PRESENTLY, WHILE SHIPPING IS MAYBE CHANGING ITS CHARACTERISTICS FROM SERVICE TO COMMODITY, ARE WE ACTING IN THE MOST EFFICIENT AND PROPER PATTERNS?

THIS IS A SUBTLE QUESTION, NO IDEA, VISION OR MODEL WILL CREATE AN OPTIMAL CONFIGURATION BUT AT LEAST WILL TRY TO DO SO.

C. MEDITERRANEAN TERMINALS.

PRESENT PREDICTIONS ARE DESCRIBING SIGNIFICANT INCREASE IN MED PORTS ACTIVITY, MAINLY TOWARDS INCREASED TRANSSHIPMENT ACTIVITY.

BEYOND INTERESTING AND AMBITIOUS DEVELOPING PLANS, SOME PROJECTS ARE CLOSE TO COMPLETION, SUCH AS CAGLIARI, TARANTO ETC.

SOME OTHER PROJECTS DEAL WITH SIGNIFICANT ENLARGEMENTS OF EXISTING TERMINALS, AND THEIR INFRASTRUCTURE, WHILE OTHERS ARE AT DIFFERENT PLANNING STAGES.

ONE THING IS CLEAR, EVEN THOUGH FORESEEN INTENSIFIED ACTIVITY IN THE MED, OWING TO GLOBAL ECONOMICAL GROWTH, MANY OF THE MED TERMINALS ARE FACING A BEGINNING OF AN OVER CAPACITY ERA.

SOME PREDICTIONS ARE FORESEEING SLIP OF UTILIZATION LEVELS FROM PRESENT 85% TO 65% IN 3-4 YEARS.

ALSO BEYOND THOSE 3-4 YEARS, THERE IS NO SIGNIFICANT CHANGE IN THIS TREND, EVEN IN GLOBAL TRADE GROWTH AND PROBABLY ACCELERATED TRANSSHIPMENT ACTIVITY.

THIS SCENARIO, MOST PROBABLY, WILL LAST UNTIL THE END OF THE PRESENT DECADE.

IS THIS ALLEGED GLOOMY FORECAST SAID TO CHEER UP CARRIERS ONLY BECAUSE OF INTENSIFYING COMPETITION AND FURTHER BENEFITS IN TERMINALS TARIFF?

AND I SAY NO, I BELIEVE THAT SUCH A PREDICTION SHOULD BE TAKEN INTO CONSIDERATION AS STIMULATING GROUND FOR MORE EXTENSIVE USAGE OF TERMINALS' POTENTIAL, ESPECIALLY THOSE TERMINALS WHICH WILL WISELY ADAPT THEIR STRUCTURE TO THE NEW DEMANDS OF THEIR USERS.

CARRIERS SHOULD CONSIDER NEW STRATEGIES. WHICH WILL TAKE INTO ACCOUNT TERMINALS' ABILITY OF FUTURE DEVELOPMENT FOR THEIR MUTUAL BENEFIT.

STRATEGIES WHICH ON TOP OF CARRIERS' NEEDS WILL SIMULTANEOUSLY SUPPORT THE PORTS, SAID TO BE THE CARRIERS' SAFE HAVENS.

THOSE NEW HORIZONS AND THE POTENTIAL IN THE MED TERMINALS, ACCOMPANIED BY THE BASE TENET OF MAXIMIZING CARRIERS EARNINGS ARE CONSTRUCTING THE "FLEUR DE LYS" CONCEPT'S FOUNDATIONS.

D. THE "FLEUR DE LYS" CONCEPT.

THE "FLEUR DE LYS" CONCEPT IS CONSTRUCTED, AMONG OTHERS, FROM PENDULUM ROUTE BETWEEN ASIA TO THE MED AND VICE VERSA.

A MAIN ARTERY THAT CONSISTS OF SOME POST PANAMAX VESSELS, WHILE FLEET SIZE VESSELS SIZE AND FREQUENCY ABOVE INDISPENSABLE WEEKLY SERVICE, IS TO BE DEFINED ACCORDING VOLUMES SERVED.

THOSE VESSELS, LOAD UNITS IN ASIA BOUND TO MEDITERRANEAN, NORTH EUROPE, NORTH AMERICA, SOUTH AMERICA AND WEST AFRICA,

THENCE, PROCEEDING TO THE MED VIA SUEZ AND DISCHARGING ALL CARGO IN A MEDITERRANEAN HUB FOR FURTHER ROUTING.

AFTER LOADING EASTBOUND TRANSHIPPED UNITS, ORIGINATING FROM MENTIONED MARKETS, SAILING BACK TO ASIA.

COMPLEMENTARY SECONDARY PENDULUM SERVICES, AFTER DISCHARGING THEIR IMPORT INTO THE HUB, ARE LOADING TRANSHIPPED UNITS AND PROCEED TO NORTH EUROPE, NORTH AMERICA, SOUTH AMERICA AND WEST AFRICA.

ALL THOSE STRINGS SERVING ALSO THE MEDITERRANEAN MARKETS TO AND FROM THEIR RESPECTIVE ORIGINS.

AS EXPLAINED, THE "FLEUR DE LYS" CONCEPT DEALS WITH THE AMALGAMATION AND ESTABLISHMENT OF A UNIFIED ARTERY BETWEEN ASIA AND THE MED, A COMMON PATTERN FOR ALL CARRIERS ACTING IN THESE TRADES AND COMPLEMENTARY STRINGS TO FINAL DESTINATIONS.

THIS TRUNK, THE STEM OF THE MODEL AND ITS COMPLETING SECONDARY STRINGS, ITS PETALS, ALLOW THE RATIONALIZATION AND UNIFICATION OF SEVERAL EXISTING SERVICES AND RESULTING IN LARGER VESSELS, SMALLER FLEET SIZE AND MINIMIZING COSTS.

THE CONCEPT, EVEN BEING INTERESTING, RAISES SOME QUESTIONS REGARDING ITS QUALITY, COSTS AND OTHER ASPECTS WHILE COMPARED TO THE TRADITIONAL CONCEPT.

THE FIRST OBVIOUS QUESTION IS THE TRANSIT TIME. WHILE EVALUATING TRANSIT TIMES IN THE "FLEUR DE LYS" CONCEPT, WE CAN SEE THAT SOME STRETCHES ARE FAVOURED DUE TO THE NEW CONCEPT, WHILE OTHERS ARE ENJOYING BETTER TRANSIT TIMES IN THE TRADITIONAL CONCEPT.

HOWEVER, IN SPITE OF TRANSSHIPMENT, AS AN AVERAGE TRANSIT TIMES LEVELS IN THE "FLEUR DE LYS" CONCEPT ARE BEING KEPT ALMOST UNHARMED IF NOT IMPROVED.

ALTHOUGH THE CONCEPT WAS ONLY EXPLORED INDICATIVELY, INTERESTING RESULTS WERE FOUND WHILE EVALUATING THE SLOTS' FIXED COSTS.

BEYOND THE WIDE GAP IN THE UNITED STATES EAST COST SLOT COSTS - RESULTING FROM INTERMODAL TARIFFS, IT WAS FOUND THAT TRANSHIPMENT COSTS ADDED TO THE "FLEUR DE LYS" SLOTS' FIX COSTS DID NOT CREATE ANY SIGNIFICANT DISPARITIES COMPARED TO TRADITIONAL CONCEPT SLOT COSTS.

IN SOME CASES WE CAN WITNESS IMPROVEMENTS IN THE "FLEUR DE LYS" CONCEPT.

WHILE COMPARING OTHER PARAMETERS, WE CAN NOTICE A SIGNIFICANT REDUCTION OF FLEET SIZE BY UP TO 55%.

THE SLOTS' VOLUME IN THE "FLEUR DE LYS" SYSTEM, - MAINLY DUE TO THE TRANSHIPMENT INFLUENCE, IS BIGGER BY 9% THAN THE TRADITIONAL CONCEPT SLOTS' VOLUME.

ANOTHER VERY INTERESTING AND VITAL COMPARISON IS THE COST AND FINANCE OF BOTH SYSTEMS.

COMPARING BOTH CONCEPTS WAS DONE UNDER EQUAL ASSUMPTIONS.

SAME MARKETS AND VOLUMES SERVED.

SYSTEMS' FINANCE WAS CONSIDERED UNDER 20 YEARS DEPRECIATION, 8% CAPITAL INTEREST AND RESIDUAL VALUE OF 10%.

AS A RESULT, THE "FLEUR DE LYS" CONCEPT SHOWS A SAVING OF ABOUT 15% COMPARED TO THE TRADITIONAL CONCEPT.

THIS IS QUITE PROMINENT, WHILE COMPARING BOTH CONCEPTS' CAPITAL PER SLOT PER DAY.

E. CONCLUSIONS.

AFTER EVALUATING BOTH SYSTEMS, WE MAY NOTE THE ADVANTAGES OF THE "FLEUR DE LYS" CONCEPT AS FOLLOWS:

SIGNIFICANT REDUCTION OF FLEET SIZE (BY 55%)

SIGNIFICANT SAVING IN FINANCE (BY UP TO 15%).

MAXIMIZING OPERATIONAL FLEXIBILITY DUE TO SYSTEM'S MODULAR NATURE.

MORE FLEXIBLE REACTION TO TRADE FLUCTUATIONS BY EASIER REALLOCATION OF RESOURCES AND PHASING IN AND OUT OF VESSELS

BETTER AND MORE FLEXIBLE OPTIONS TO VARIOUS JOINT VENTURES ALONG THE CONCEPT'S COMPONENTS - ALLOWING FURTHER COST EFFECTIVENESS

REDUCTION OF SLOTS' FIXED COSTS BY 15-20%

OPERATIONAL, LOGISTICAL AND ECONOMICAL BENEFITS BY OPERATING ASIA-MED MAIN ARTERY BETWEEN TWO CENTERS WITH RELATIVELY HIGHER UTILIZATION ALONG THE ROUTE.

IMPROVED NEGOTIATION POWER BY USING THE ECONOMIES OF SCALE, THUS REDUCING COSTS.

IT IS OBVIOUS THAT THE "FLEUR DE LYS" CONCEPT, REQUIRES FURTHER STUDY AND EVALUATION OF ITS OPERATIONAL AND ECONOMICAL FEASIBILITY.

BEYOND THE CONCEPT'S SUGGESTED BENEFITS, ALSO AN ADEQUATE HUB PORT HAS TO BE DETERMINED REGARDING VOLUMES AND EFFICIENCY.

HOWEVER, PRESENTLY WE CAN SEE SOME TERMINALS THAT CAN ACHIEVE THOSE GOALS IN THE RELATIVE NEAR FUTURE.

F. FINAL REMARKS.

AND THEN, THERE ARE SOME SIGNIFICANT AND INCISIVE QUESTIONS REGARDING AND PRECEDING SUCH A MODEL AND ITS IMPLICATIONS.

WILL THE TREND OF AMALGAMATION INTO MEGA CARRIERS AND CONSORTIA'S CONTINUE THUS ENABLING THE EVOLVEMENT OF A CONCEPT SUCH AS THE "FLEUR DE LYS"?

CAN A COMMON ASIA-MED TRUNK MODEL CREATE A SCENARIO IN WHICH ECONOMICAL SLOTS WILL BE OFFERED AS "COMMON FEEDING" TO SHIPPING.

CONSIDERING THAT ALSO THE SECONDARY STRINGS MIGHT BE "COMMON FEEDED", ARE WE FACING AN ERA OF MEGA NVOCC'S COMPETING WITH TRADITIONAL CARRIERS?

CAN SO THE CALLED "COMMON FEEDING" SUBSTITUTE TRADITIONAL MAIN LINERS' ROLE?

AND THERE ARE MANY OTHER QUESTIONS THAT WILL REMAIN UNANSWERED AND WAITING PROBABLY FOR A MORE COMPETITIVE MARKET AND PRESENTLY OBSCURED SCENARIOS.