Direct shipments tipped to herald the decline of mega box ships

Indonesian President Joko Widodo. Credit: Getty Images
Indonesian President Joko Widodo. Credit: Getty Images

Global carrier CMA CGM has been quietly expanding its direct liner services in the Asia-Pacific region, now bypassing Singapore to connect Indonesia with the United States, Europe, and Australia. Industry analysts say it may be sign of the times.

While Indonesian ports have long been mere feeders to the Singapore mega transhipment hub, the French line, the world’s third biggest, has been helping to change that.

A year ago, the shipping line embraced Jakarta’s ambitions for Indonesia to become a maritime fulcrum in the region. Indonesia is investing USD50 billion in ports and CMA CGM has followed suit with three new direct shipments out of Jakarta’s Tanjung Priok port.

Last year it introduced direct shipments to the United States, Indonesia’s top trading partner. Direct shipments from Europe have since followed. An Australia–Indonesia direct service opened in August in anticipation of a bilateral free trade agreement before the end of the year.

Indonesian President Joko (Jokowi) Widodo officiated the sailing of the 10,000 teu CMA CGM Tage at Tanjung Priok, with the ship carrying 4,300 teu of Indonesian exports to the United States in May. The direct shipment saved exporters USD300 per container, the president told local media.

Despite industry reports surfacing in July that the service was unviable and would be abandoned, CMA CGM Jakarta adamantly denied them.

“We still continue to maintain our weekly call service from Jakarta to Los Angeles through Columbus JAX Service,” a spokesperson told IHS Markit.

“Indonesia has very high logistic costs and a high demand for exports to the United States,” she said. “CMA CGM gives the government and port terminal a solution, providing direct call services from Indonesian ports and linking to the United States, Europe, and other Asian countries.

“This is in line with President Jokowi’s Sea Toll Program to make Indonesia a maritime nation,” she said. “CMA CGM Indonesia has helped boost Indonesian export volumes.”

CMA CGM Tage sailed from Tanjung Priok to the United States in May. Credit: Dietmar Hasenpusch

CMA CGM is also playing a role within the archipelago by partnering with local agents in the regional ports, she said.

In August, the line introduced a Jakarta–Australia direct service. Previously, Australian/Indonesian cargo took a further day’s journey north to be transhipped back via Singapore, as did Indonesian trade with the United States and Europe.

The new services not only reflect the success of Jakarta’s investment in ports, but also signals that the era of mega hub ports and box ships has reached its zenith, according to industry analysts.

As far back as 2000, Professor Hercules Haralambides of the University of Rotterdam predicted that the mammoth container ships, calling at fewer and fewer hub ports, would reach its upper (economic) limit.

“The future will see an increase in the market share of smaller ships, directly calling at more ports that serve a limited hinterland; a development similar to what has happened in aviation after that market was liberalised,” Haralambides wrote in his paper A second scenario on the future of hub-and-spoke system in liner shipping.

Drewry published a graphic report in July 2017, showing that this was now the trend.

“Container ship economies of scale are running out,” Philip Damas, head of supply chain advisors at Drewry London, told IHS Markit.

Aden Wong, senior consultant of ports and terminals at Drewry London has also predicted a gravitation towards direct services.

“While traditional arguments for a hub-and-spoke transhipment model still hold, emerging factors such as consolidation among lines and alliances and low bunker prices have lent support to a gravitation towards direct services,” he wrote in Global Trends and their impact on the Port Sector (2016). “This trend is further backed by improving port infrastructure and increasing gateway volumes in traditional feeder markets.”

Wong predicted that the economies of scale in bigger ships would introduce inefficiencies in the supply chain.

“Ports are forced to persistently upgrade their infrastructures and operate with lower returns and higher productivity pressures,” he argued.

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Mega hub ports catering for the biggest container vessels are not necessary for direct shipments.

“While there is no magical tipping point in teu for a feeder port to become a gateway (mothership) port, 500,000 teu a year is needed to provide shipping lines the economic incentive,” Damas told IHS Markit.

“Proximity to the existing mothership lanes is critical,” he said. “There is a cost threshold to be met by replacing the combined cost of transhipment and feeders by the cost of deviating the mothership from the existing shipping lane to a new port.

“Some feeder ports quickly evolve to gateway (mothership) ports and then to transhipment (mothership) ports,” he added.

Damas points to Tanjung Priok and relatively recent Vietnamese gateway ports such as Vung Tau.

“They are clearly not attracting the large 15,000 teu containerships, yet,” Damas said. “But they are already able to attract ships of (more than) 9,000 teu in Indonesia and up to 13,000 teu in Vietnam, as well as intra-Asia motherships and feeders.”

Tanjung Priok port. Credit: IPC

In Jakarta, all eyes are on the development of the Kuala Tanjung transhipment centre in northern Sumatra just across the Malacca Strait, one of the world’s major shipping lanes, and Singapore.

“Most transhipment activities in Sumatra Island are carried out in its neighbouring countries. With Kuala Tanjung Port, our vessels can tranship their loads without having to travel to their neighbouring countries,” CMA CGM Jakarta said in a statement to IHS Markit.

While demand for direct shipping services is making a splash, such is the growth in trade in the region, however, it has yet to affect container traffic through the port of Singapore. Far from being snubbed, the port boasted 33.7 million teu throughput in 2017, up by 8.9% on the previous year. Monthly figures for 2018 point to another record year for 2018.