More capacity must go

10/25/2012

More capacity needs to be trimmed and alliances expanded if the Asia-Europe and Asia-Mediterranean trades are to be returned to some kind of health.

That was the message from Fadi Issa, MD of CMA CGM in Turkey, at this week’s 5th Annual Med Freight conference. 

In a keynote address, the executive stressed that capacity was the “big issue” and that nine of the 17 carriers engaged in the trade had all expanded their slot offerings in the past 12 months (up to September 2012).

He added: “And the capacity reductions planned for October and November of this year will not be sufficient to restore rates.”

This suggests that without an either more aggressive capacity set aside programme by the carriers or a sharp reversal in cargo demand, 2013 will be extremely challenging.

Issa also used his address to highlight the significance of the new alliances that had been put in place this year, saying they were vital in helping individual carriers spread their investment risk.

He said: “For an Asia-Europe string, 12 ships of at least 12,000teu are needed and that is an outlay of at least US$1.4 billion. But to be competitive, at least three strings are needed, raising this investment level to $4.2 billion. 

“Then there are the containers that are needed to support the ships – up to18,000teu for each unit at a cost of $400 million.”

As to the future, Issa said the new breed of alliances needed to become multi-trade in nature and to also look at procurement opportunities, thus allowing members to take advantage of purchasing discounts.

CMA CGM works with both Maersk Line and MSC in the trades between Asia and Europe.