Small sells Big

If crisis redefines theories, it’s survival of the smallest and not the strongest, at least now. Small feeder services that have been lugging cargo around coastlines are turning out to be impressive and lucrative transport options for shippers. Outsmarting the big and bonny vessels, they are winning the advantage in their small size and scale during recession and doing business big time. 

by Radhika Rani G.

Modern methods and innovations in maritime transport are being tried, tested and touted in these times of financial turbulence. As world shipping faces the collapse in freight rates and thereby contract defaults and bankruptcy of several leading shipping companies, the ports and shipping community is looking for ways to earn revenue.

“Prospects are far more uncertain,” predicts Drewry Shipping Consultants for the current fiscal. As dwindling freight rates have significantly nibbled away the shipping lines’ ability to generate revenue, Drewry estimates that the growth of global trade in goods and services is expected to decline from 7.2 per cent in 2007 to 2.1 per cent in 2009. With container volumes falling, ocean carriers could jointly lose nearly US$ 70 billion in revenues this year, it cautions.

To sustain in these difficult times, a lot of cash-strapped industries are revamping their cost structures. In such a scenario, feedering wet and dry bulk cargoes, containers and even passengers on the coastal routes is turning out to be an effective way of minimising shipping costs. Such services are apparently providing the much-needed stimulus to the movement of cargo, ahead of either road or rail transport.

Feeder service is of utmost importance for the overall operation and optimisation of any container transport and seaborne traffic, says Dusan Rudic of the University of Rijeka, Croatia, who has researched the economic viability of container transport. “It makes the entire container service rational, well-balanced, symmetrical and dynamic,” he avers.

Technically, coastal shipping seems synonymous with feeder transport as it survives through feeder support. Conceptually, such short sea services link container terminals and supply cargo to larger mother ships to avoid their calling at every port. As they prove to be profitable, their emerging role as commercially viable means of transport is being researched and even acknowledged by early-starters. Such an alternative service also helps towards achieving a better turnover of large container ships, reducing the total costs of container system besides being useful for successful operation of container transport on any other route, Rudic adds.

The domestic scenario

Feeder services have long been the growth drivers of coastal shipping. Being cost-efficient, reliable, environment-friendly and flexible in moving all types of cargo like containers, break-bulk and rolling stock, they have been providing a congenial option for cargo transport. Though the number of feeder services is growing on the east and west coasts of India, their viability can be further tapped, especially in these shaky times. 

While the Shipping Corporation of India, Samsara, Seaways Shipping, Shreyas Shipping & Logistics and SKS Logistics are some of the companies offering feeder transits, many more shipping lines are likely to join the league. Among the overseas ones, FAR Shipping Lines (FSL) of China, already calling at Kolkata/ Haldia and Chennai, has launched a new feeder service between Visakhapatnam and Colombo. 

Though India has one of the most widespread hinterlands in the world filled with low-cost industrial growth, it lacks enough number of deepwater ports to service the backwoods. Bigger vessels, owing mainly to natural restrictions like lower draft at the gateway ports, cannot easily make it to most of the Indian ports. And so, nearly 90 per cent of the Indian container trade depends on feeder services that connect the Indian ports, both big and small, to international transshipment hubs like Singapore and Colombo. 

Also, the growing trade with the world is by itself providing a huge potential for the container feeder industry to grow and flourish in the country, say experts. Making the best use of each vessel in the fleet and securing the best possible freight rates is the focus of commercial ship management. “However, the core skill,” says Drewry, “is the ability to read the market correctly.”

Taking a cue from this, several shipping lines are contemplating consolidation for efficient feeder transport. An exercise in this direction was recently attempted by Shreyas Shipping by uniting its OEL Victory service with M V Seaways Valour of Seaways Shipping and M V Green Valley of SCI to operate the Kolkata-Colombo service. 

According to Capt PVK Mohan of Seaways Shipping, Indian flag services, instead of going it alone, can group together and service the entire coast. Since feeder services can carry both domestic and exim cargo, Capt. Mohan opines that the USP can be further explored. “We are in fact working on a policy paper for coastal shipping which will further boost domestic cargo transportation via sea,” the chairman and managing director of Seaways Shipping says.permits, Indian flag vessels could be seen forming mega alliances for servicing the ports in Singapore, Malaysia and the Middle East too. 

Seaways already has dedicated feeder services between Visakhapatnam, Kolkata and Chittagong in Bangladesh for moving cement, agri products, chilled fish and automobiles. “What has earnestly started on the east coast can gradually be moved to the west coast,” Capt. Mohan informs. And if the situation permits, Indian flag vessels could be seen forming mega alliances for servicing the ports in Singapore, Malaysia and the Middle East too.

Taking pride in its flagship service, Shreyas Shipping claims to be the first Indian feeder operator to obtain an ISO 9002 certification. “We are the first ones to start coastal feeder services from Kandla, Cochin and Tuticorin. Today, we are the leading feeder operators at Kandla,” says S Ramakrishnan, chairman and managing director of Shreyas Shipping & Logistics Ltd. 

The firm also touts to be the first one to use Jawaharlal Nehru Port for transshipment of exim cargo, to record the maximum number of vessel calls at JNP and to commence India-Pak direct container services. Its logistics arm Shreyas Relay Systems Ltd. too has succeeded in implementing the ‘land-sea-land’ total logistics solution to move cargo. Moving cars, farm products and chemical ore by sea has helped the firm reduce 15 to 20 per cent of logistics cost for its clients, Ramakrishnan says. 

Yes, an efficient upstream and down-stream supply chain alone can achieve the desired results, opines Capt. Sriram Ravi Chander, COO of Visakha Container Terminal.  “Use of inland water ways, coastal shipping and barging could make the existing structure of container terminals in the country more efficient and competitive,” he moots. 

Since short sea initiatives have proven to save money for shippers and carriers besides reducing traffic congestion at major ports, the Bombay Chamber of Commerce & Industry had long ago recommended relaxation in cabotage laws. The Director General of Shipping thereafter relaxed the norms to help foreign shipping companies relieve excessive congestion at major port terminals. As per a TCS report on coastal shipping, economic losses due to congestion and accidents on roads result in the loss of nearly Rs 400 billion annually. So feeder services can actually serve as the safe and secure alternative, declare maritime experts.

The international scene

Feeder services have long been aiding freight transport in littoral nations in the West. As per archives, the US Maritime Commission teamed up with shipbuilders at the outset of World War II to produce 2,700 ships that could act as maritime conveyor belts for war supplies to Asia and Europe. The vessels were later abandoned. But the early 1990s saw a resurgence of the service with New York's Port Inland Distribution Network (PIDN) and Osprey Line becoming the pioneers. The Energy Independence and Security Act of 2007 came just in time to encourage the development and expansion of vessels, shippers, port and landside infrastructure, and marine transportation strategies taken up by state and local governments. 

In the sea-wealthy Europe too, the growing landside congestion and the awareness of the dangers of greenhouse gas emissions have led the European Commission to encourage the shift of freight transport from road to sea. Today, feeder services are at the forefront of Europe’s transportation policy accounting for nearly 40 per cent of all the freight moved in the continent. In the Mediterranean too, several container transshipment ports in Gibraltar and Malta catering to large container ships seek feeder services, some hired and some owned. 

Thanks to the ongoing recession, more and more manufacturers, producers and processors are increasingly weighing the option of sea transport. For instance, Unifeeder, comprising 42 vessels with a capacity between 500-900 TEU and connecting nearly 25 locations in North Europe, says the size of its fleet continues to expand. “We handle over 1.4 million TEU annually, representing more than 7,500 port calls on busiest routes. In short, we provide the efficiency and convenience of a one-stop shop.” 

The hub-and-spoke system – directly linking the major ports – is gaining support as cost-effective means of transport among cargo shippers in New Zealand. “Shippers are looking at every possible way to reduce supply chain overheads,” says Rod Grout, chief executive of Pacifica Shipping. The feeder service provider has recently started a new weekly coastal service linking New Zealand’s four big ports of Auckland, Tauranga, Lyttelton and Otago. Since exporters and importers are looking for certainty of shipments without any delays and associated costs, Pacifica’s 700-TEU coastal container vessel Spirit of Endurance is providing a scheduled service up and down the country’s east coast.

In view of stringent environment norms, feeder operators are confident of reduced emissions. The 130-metre Spirit of Endurance can cut down carbon emissions by a mindboggling 60,000 tonnes a year, Rod says. If this is just one vessel drastically slashing emissions, the scale of 100 vehicles can be anybody’s guess. The operators also vouch for increased port productivity. Stas Margaronis, president of Santa Maria Shipowning & Trading in the US, says feeder vessels can greatly help in moving containers from ocean carrier terminals to nearby ports. “By doing so, they can improve productivity at major ports like Los Angeles, Long Beach, New York, New Jersey and Norfolk,” he opines.

Riding on the crest of profits, the Singapore-based feeder service provider Samudera Shipping Line reports net earnings of $ 26.8 million for the year 2008. Executive director of the group Dhrubajyoti Das hopes that the demand for shipping business will remain stable in the coming months. Having made a humble beginning through feeder line service between Singapore and Jakarta, the group is a name to reckon with in short sea shipping. “What is important for us now is to be proactive in seizing the right opportunities and in seeking innovative ways to optimise our operational efficiency,” Das confesses.

To mitigate the slowdown in the regional container segment, the Samudera board plans to rationalise its capacity via slot exchanges and NVOCC (non-vessel operating common carrier) arrangements. Several shippers are trying to mould the current freight market condition into a blessing in disguise. Nikos Varvates, president of Mediterranean Cargo Vessels Shipowners’ Union, says the current crisis can create opportunities for short sea shipping, since smaller sums of letters of credit mean smaller cargoes. He suggests that products from China can be replaced with those from the Mediterranean and Europe, thereby enforcing the feeder services market.

The feeder operators, unlike giant ocean carriers, have weathered the financial storm. So despite challenges gnawing at the maritime sector, they are upbeat about the growing demand for this lingering and thriving time-tested services.

What feeder services have

Typical ship sizes: Vary from 10,00-15,000 dwt with drafts ranging from around 3 m to 6 m.

Nature of Cargo: Wet and dry bulk cargoes, containers, rolling stock and passengers around the coast.

Typical Cargoes: Grain, fertilisers, steel, coal, salt, stone, scrap and minerals (all in bulk), oil products (such as diesel oil, kerosene, aviation spirit - all in bulk), containers and passengers (yes, even ferries).

Suitable Areas: Landlocked sea, large gulf, international hub, main feeder destination sites along sea passages

Basic Routes: Usually circular or rectangular for optimum exploitation of big ships

Advantages:

•          Alleviate congestion at main ports and highways
•          Environmentally-friendly and so decrease air pollution
•          Save overall costs to the shipper
•          Far more efficient and cost-effective than road transport
•          Less prone to theft and damage
•          Reliable with guaranteed transit times
•          Flexible in being able to move all types of cargo.

A feeder service network can:

•          Help port workers become the foundation of a new containerised transportation system eliminating thousands of daily truck trips at several congestion points
•          Create new generation coastal feeder ships that can cut the need for truck fuel by 50 per cent and thereby truck emissions that contribute to global warming
•          Re-establish the country as a competitive shipbuilder and create jobs in customised shipbuilding.
•          Save shippers and carriers money and reduce traffic congestion at major ports
•          Spur the development of a new generation of marine engines powered by non-petroleum fuels 
•          Increase education and training of mariners to meet short sea requirements along with research partnerships in marine engine development, terminal handling and vessel safety
•          Develop new partnerships with trucking companies to deliver feeder containers
•          Develop new, automated cargo handling systems, on-dock rail and alternative power for ships that reduce emissions and fuel consumption
•          Use main port assessments to finance new ships and terminal upgrades backed by ocean carrier contracts. 

Article published in Maritime Gateway, April 2009