Dec 5, 2014

Maersk to halt Japan-NA West Coast service in Jan.

Maersk Line will halt its TP5 service connecting Japan directly to the U.S. West Coast in January 2015. Of Hakata, Nagoya and Yokohama ports it now serves in the loop, Maersk will switch U.S. West Coast-bound cargo from Hakata and Nagoya to via-Pusan transshipment, while it will handle cargo to/from Yokohama by chartering space from CC3 service on the Asia/Japan-North America route offered by APL Ltd. On North America routes in 2014, two direct East Coast-bound services stopped calling at Japan ports. However, in West Coast-bound services, this will be the first time that Japan ports will be dropped from the service rotation. Amid Japanese operators exerting efforts to maintain/expand their presence on East-West trunk routes, the removing of Japanese ports by the world's largest liner operator Maersk sheds lights upon the continuing plunge in relative importance of the Japanese market.

TP5 by Maersk is currently offered with a fleet of six 4,000-TEU boxships rotating: Qingdao, Kwangyang, Pusan, Hakata, Nagoya, Yokohama, Los Angeles, Oakland, Dutch Harbor, Yokohama, Kobe, Qingdao. Outbound export service will be terminated on Jan. 13, 2015 when the Pretoria enters Hakata, and the same ship will be the last ship in inbound service arriving at Yokohama on Feb. 13.

As for alternate routes after TP5 suspension, Maersk will transport cargo from Kobe, Nagoya and Hakata to Pusan by feeder service for connection with TP8 to be provided jointly by Maersk and Mediterranean Shipping Co. (MSC) under 2M alliance. Import cargo to these three Japanese ports shipped from the North America West Coast will be handled via feeder services at Asian ports.

As for cargo to/from Yokohama, Maersk will halt TP5 as mentioned above but will launch a new TP5 by utilizing APL's CC3 North America service. CC3 is part of the G6 Alliance's service operated by APL with six 5,100-TEU ships. Just as in the ongoing TP5, the new TP5 will be offered mainly via U.S.-registered ships and directly sails to Los Angeles after leaving Yokohama. New TP5 will rotate: Naha, Qingdao, Shanghai, Pusan, Yokohama, Los Angeles, Oakland, Dutch Harbor, Yokohama, Pusan, Naha. The new TP5 will kick off with the APL Holland entering Yokohama on Jan. 18, while the inbound leg will start with the same ship leaving Los Angeles on Jan. 29. Transit time (T/T) from Yokohama to Los Angeles will be 11 days, one day longer than at present. T/Ts from other ports than Yokohama are yet to be known because details of feeder services involved are not fixed yet, but effects are seen to be relatively minor for shipments from Hakata because of Hakata's proximity to Pusan.

Maersk will continue to offer service via slot-charter and transshipment, but still, impacts from discontinuation of a direct service offered for years will be far-reaching. Maersk owns the world's largest service network and has persistently made calls at Japanese ports on East-West trunk routes amid China boosting its profile year after year in the Asian market. Under the 2M Alliance due to kick off in 2015, Maersk will not only maintain its Japan port calls in its North Europe service, but will deploy larger 13,000-TEU-class ships. Further, it has been known that Maersk will additionally call at Yokohama and Nagoya in its Black Sea service. On North America routes as well, it is scheduled to visit Yokohama and Nagoya in return voyage from North America West Coast ports such as Seattle and Vancouver as part of 2M operation.

Meanwhile, about the obviously growing difficulty maintaining services at Japanese ports in East-West routes, Maersk itself has often given a warning. In an interview with Kaiji Press in 2013, Jorgen Harling, president of Japan Branch at A.P. Moller-Maersk, who was once in charge of the company's network planning entitled to determine its ship deployment schedule, said that, "Should Japan's cargo volume remain flat, it would be difficult to make direct calls to Japan, where we can only collect relatively small quantities of cargo," confiding that his company maintains direct services from the perspective of offering shippers good products. He also pointed out that skipping ports on a trunk-route service runs the risk of fewer or downgraded feeder routes connecting to it.

Behind Maersk's decision to halt TP5 lay the difficulty it had encountered in ensuring sustainable profitability. The enlargement of boxships on North America routes has advanced quite rapidly over the past several years with 8,000-TEU-class ships having now become the standard type. In some services on China-North America routes, super-large 13,000-TEU ships are now deployed. In Japan, on the other hand, midsize boxships with capacities of 4,000 or 5,000 TEUs have to be assigned because of the market size and constraints in ports. As such, it is difficult to cut cost via large ship deployment compared to other Asian ports. Another headwind against not only Maersk but also many peers is the fact that they are gradually shying away from handling Japan's inland-bound cargo which tends to lower the container turnover rate, in a bid to slash cost. In Japan's cargo, the ratio is rather high of production parts originating in inland factories and being carried by rail. This is a cause for the Japanese market losing much of its attractiveness to ship operators compared to other Asian markets. In the return leg, operators can expect a certain amount of demand for such cargo as agricultural produce, but in the opposite direction in which Japanese ports are final destinations in Asia, the reality is that it is becoming increasingly difficult to maintain direct services to Japan.

Other than TP5 as well, an operator source serving a Japan-North America liner loop said that although they do not deploy large ships on the route, cargo flows are not brisk enough to fill ships to capacity. Considering Maersk's intention to arrange an alternative route to make up for TP5 termination and retain some wiggle for accepting a certain volume of North America-bound cargo, it is doubtful if there will emerge a sense of tightness in bottoms supply as regards ex-Japan North America-bound cargo, said the above official. He added that things will not work against their company, but pointed to the difficulty predicting how the immediate future of the market will pan out, citing the still prolonging port disruptions on the North America West Coast stemming from the yet-to-be resolved new labor contract talks between dockworkers and their employers.

Apart from the supply-demand equation, the impact Maersk's port call discontinuation will have on the industry will never be minor. Not a few market players suspect that the fundamental cause of the development could be the sluggish freight rate levels operators can fetch from hauling ex-Japan cargo and it is shocking to see Maersk, the irrefutable world's leader, struggle and fail to take any other effective steps. They voice growing concern over the future of the Japanese market in terms of its sustainability.
(By Yui Kozakai)

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