CMA CGM buffeted by slowdown, looks to rail

International container shipping giants are seeing business drop as the global economy continues to slow.

"The last three years were exceptionally good. But 2009 is a really tough year," said Frederic Campagnac, deputy general manager of CMA CGM (China) Shipping Co Ltd. The Marseille-based CMA CGM is the world's third largest container shipping company.

The global shipping industry is plagued by falling cargo traffic demand and low shipping prices due to the deepening global economic crisis. The World Trade Organization recently forecast fallout from the financial crisis will drag global trade down by 9 percent (from a year earlier) in 2009, which will be the largest contraction since World War II.

Ports and international container shipping companies are in one of the first sectors to experience the chill from falling global trade.

Foreign trade cargo throughput in Chinese ports has fallen since November when China's export and import value dropped for the first time in seven years. Chinese ports handled 130.6 million tons of foreign trade cargo in February, down 11.7 percent year-on-year and down 9.8 on a monthly basis, according to figures from China's Ministry of Transport.

"The volumes are not that bad, but what really hurts the industry is that the shipping rates are too low and not commercially sustainable," said Campagnac.

Campagnac would not reveal the average container shipping rates at CMA CGM. But Liu Bin, a professor at Dalian Maritime University, told the 21st Century Business Herald that the shipping price for a container from Shenzhen in South China to Europe was only $400 in November last year while the rate was as high as $1,500 the previous year.

Denmark-based shipping conglomerate A.P. Moller-Maersk Group recently said in its annual report that the outlook for container rates in 2009 is "extremely negative". The company said falling transportation volume, combined with increase in new tonnage in recent years and in 2009 and 2010, exerts "considerable pressure on freight rates, in several trades to a level that barely covers variable costs".

CMA CGM has been trying to reduce its costs to resist the economic downturn. It has rationalized its capacity and is raising its shipping rates starting in April, Campagnac said. By using a large ship, for example, it can merge two services. It also stopped leasing some ships. The family-owned company currently operates a 370-vessel fleet, 90 of which are company-owned.

The company continues to operate its ships at slow speed to reduce fuel consumption. It also rerouted its Europe-Asia shipping, sending its fleet around the Cape of Good Hope in order to avoid paying high fees at the Suez Canal.

Campagnac said CMA CGM's 30 weekly services to China will "stay more or less the same". China is one of the French company's most important overseas markets, contributing over one-third of its earnings. Last year it carried 3 million TEUs (twenty-foot equivalent units) to and from China, accounting for one-third of the company's overall shipping volume.

CMA CGM invested in China's first Sino-foreign joint rail infrastructure venture in 2007. Campagnac said the investment will soon pay off as a rising number of customers value door-to-door services that have become a competitive advantage for shipping companies.

The company, named CRIntermodal, was launched in 2007 with plans to build and operate 18 rail container terminals in regional economic centers throughout China. It will also operate double-decker train transportation on a 16,000 km network connecting the 18 terminals. CMA CGM has an 8 percent share in the joint venture, which has a total value of 12 billion yuan. The joint venture will also be involved in container-handling, storage, repair, customs declarations, logistics and other related businesses.

Currently two rail container terminals, Kunming in Yunnan province and Shanghai, are completed. Another seven, including Chongqing, Zhengzhou, Dalian, Qingdao, Chengdu, Xi'an and Wuhan, will enter service within a year, said Campagnac.

If a CMA CGM customer in Kunming wants to transport tobacco to Europe, the company will no longer need to subcontract rail transportation from Kunming to the port in Shenzhen. CMA CGM can pick up the cargo in Kunming and send it directly to its container ship in Shenzhen.

The French company strengthened its intermodal freight transport service offer since 2004. Intermodal freight transport allows shipping companies to provide door-to-door service by combining maritime shipping with rail, river and highway, reducing damages and losses and making transport faster and cheaper.

(China Daily 04/13/2009 page9)