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July10, 2017

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32 THE JOURNAL OF COMMERCE www.joc.com JULY 10.2017 COOL CARGOES SPECIAL REPORT REFRIGERATED CARGO, A sector that rou- tinely posts strong growth, represents a lucrative business for ocean carriers. However, the major structural changes underway in the ocean carrier market and the shrinking number of carriers present a paradox, according to Philip Damas, head of logistics practice at Drewry, speaking at the 2017 TPM Con- ference in Long Beach earlier this year. One the plus side, Drewry forecasts the global perishable reefer trade (seaborne) will reach 120 million metric tons by 2020. It's a hot market, Damas said, driven by growth in bananas and meat, along with rising volumes of exotic fruit, confection- ery, and pharmaceuticals. He outlined four reasons the market will stay strong. Population growth. Every year, another 100 million people are added to the planet. Many of them depend increas- ingly on imported food, perhaps because they live in a region that does not have the capacity to grow enough fruit and vegeta- bles locally, or there isn't enough water to support conventional agriculture. Changing eating habits. Emerging markets in Asia and eastern Europe are migrating toward a US-style diet with more meat, while people in developed countries are striving for a healthier, balanced diet, with more fresh fruit and vegetables, Damas said. Both trends con- tribute to a growing reefer market. Growth in non-traditional sea- borne reefer products. "Not everyone knows this, but there is quite a lot of chocolate, in particular, that moves via reefer container," he said. Pharma- ceuticals are another growth segment, including plasma and medicines. Modal shift. "In the past two years, a large volume of temperature-controlled cargo has moved from air freight to sea freight, the reason being that sea freight costs one-tenth of what air freight does," Damas said. It's also worth noting that within the sea freight sector, there has been a significant migration of reefer cargo from specialized carriers to con- tainerized carriers. Contrasting the otherwise rosy pic- ture is the dwindling number of ocean carriers that will remain after the unprecedented merger and acquisition activity subsides. "We used to have a very fragmented (ocean carrier) indus- try," Damas said. "If you were a buyer, you had a lot of power. But that's chang- ing, and now the ocean carrier industry is becoming more concentrated." By the end of 2017, the top six containerized carriers will control 75 percent of the market, he said, which could present some negative outcomes for BCOs. For one, after a period of historically low freight rates, the picture is starting to change, and rates are heading higher. In addition, "I expect we may also see a huge amount of weight relativity affect costs," he said, adding that, "There is no benchmark, no transparency in reefer pricing, so you don't really know what the price is." He cited Maersk Line's $500 million loss in 2016, compared with the $1 billion gain the carrier expects to see next year. "That's a $500 million BCOS CHILLY ON SERVICE

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