Delft University of Technology
Faculty Mechanical, Maritime and Materials Engineering Transport Technology / Logistic Engineering
R.C. Govers The reefer market in the next century. How to position as a specialised reefer operator. Masters thesis, Report 98.3.LT.5019, Transport Technology, Logistic Engineering.
Currently a lot of parties are involved in the seaborne logistical chain of reefer produce. On the physical side the products go through a lot of stages. Briefly: they have to be packed, loaded, pre-transported to the port, shipped and post-transported to the consumer. In-between the products need to be stored, re-packed, sorted, etc.. For the seaborne shipping a choice can be made between conventional reefer vessels or reefer containers. On the commercial side the products can go from the exporter through many canals to the final consumer. Most of the flow is going through big importers at the moment, and the importers mainly sell to wholesale and retail chains.
World reefer trade is expected to increase from around 40 million tonnes in 1994 to about 60 million tonnes in 2005. The main seaborne importing regions are currently Europe and North America, but the growth in seaborne reefer imports will mainly come from other areas. The emerging importing markets are expected to be the Far East, Eastern Europe and the Former Soviet Union.
The trades on which Seatrade Reefer Chartering, as a conventional reefer operator, is currently active are mainly concentrated around the Atlantic Ocean. A few trades are concentrated around the Indian and Pacific Ocean. The main concern on many trades is how much influence the reefer-container will get, but a lot of effort is paid to attract cargoes for the conventional vessels. Seatrade stays closely in contact with a lot of exporters and if necessary they offer more services than just seaborne shipping. In some exporting countries cold stores are operated to offer exporters facilities to bring the cargo in before the vessel arrives. Another service is setting up door-to-door trades, Seatrade offers a client that she will arrange the whole chain from door to door. Clients are more and more demanding these services, because they don't want to stay in contact with a lot of companies for one trip. The modal split between conventional reefer vessels and reefer containers is expected to be in the advantage of the reefer container. The 1996 market share of the conventional operators was still 58%, but it is expected that this figure will decline to 52% in 2005. Containers are expected to be particularly strong on the year round trades of meat and dairy, but will get an increasing impact in the seasonal trades of citrus and deciduous fruit. Seatrade, as the world's largest conventional reefer operator, is very well positioned among her nearest competitors. None of the competitors can offer such a diversified fleet to their clients as Seatrade can. Only Seatrade's container carrying capacity on deck is less than the container capacity of her nearest competitors, but new vessels will offer more container capacity and strengthen Seatrade's position among her competitors even more. The container competition is coming from all the large container operators, but Maersk (who has the largest reefer container slot capacity) is particularly paying a lot of effort to get more and more reefer freight. The total conventional reefer fleet capacity is expected to rise from 295 million cu.ft. in 1996 to 356 million cu.ft. in 2005. For the container reefer slot capacity the very positive forecast is that this capacity will rise from 360 million cu.ft. in 1995 to 1,024 million cu.ft. in 2005, the average forecast does expect the capacity increase to be 785 million cu.ft. by 2005. The reefer box capacity by 2005 is expected to be 1,376 million cu.ft..
Taking the future capacity developments of conventional reefer containers, reefer slots and reefer containers in account, the productivity is expected to change between 1996 and 2005. The productivity of the conventional carriers will increase by 14.8%, while the productivity of the reefer containers will decrease by 4.2%. The number of reefer slots on container vessels to be build is even so high that a productivity decrease of between 6 and 9% is expected on the reefer slots. Total capacity will be much in favour of the container operators and it is not impossible that the mentioned modal split is going to change more in favour of the container than expected. This would result in less productivity increase than expected for the conventional carriers. Tomorrow's logistical chain will be dominated by the big retail chains and on the other hand supplier representatives. The supplier representatives will be big or grouped exporters, marketing boards or big importers. The smaller supplier companies will only be able to resist the power of the retail chains if they have a certain niche market. The physical logistical chain will be organised by companies offering many links of the logistical chain, this because the retail chains want to work with one company able to offer them all they need. All the company interviews clearly indicated that in future there will only be place for those companies able to give added value to a product as the retail chains will get more and more power. This could be in offering many physical links in the logistical chain or being in control of many commercial logistical activities.
Many competitors of Seatrade have been visited in order to get their ideas on the future developments within the reefer market. lt became very clear that the big specialised reefer competitors of Seatrade do see the urgency of change in order to be competitive to the container lines. The specialised reefer companies do see a positive future for themselves especially when they start using their on-deck container capacity better and maybe co-operate more with another specialised reefer operator or a container line.
The main expectation is that mergers will take place between the major container lines, because otherwise they will not be able to be competitive on their container rates. Also some smaller specialised reefer operators will probably merge in order to cope with the competition of the larger companies. If there will be co-operation between a specialised reefer operator and a container line, then that will be in first instance only on a trade specific level. On the long run full co-operation might be expected in order to serve the clients the best way possible, as clients require all services from a few or one logistics provider.
In several markets there appear to be some analogies with the reefer market. In fact many companies and markets that have to do with transports are facing changes as are appearing in the reefer market. Especially air-cargo trucking, airlines and special chemicals are having quite a few analogies with the
reefer market. Air-cargo trucking faces problems with empty return legs and the air-cargo trucking companies in Europe have joined their forces to co-operate on joint-scheduling. Airlines are having many arrangements with each other on capacity sharing and joint marketing. Special chemicals are transported in kind of the same modalities as in the reefer market, having parcel tankers on one side and tank-containers on the other side. Having taken a look at different transportation markets it can be concluded that more co-operation between logistics companies, so also in the reefer market, can be expected in the future.
About 40% of sailing by Seatrade vessels is done in ballast which does not generate any return. A closer look has been taken on the possibilities of taking back-haul cargo in order to reduce ballast trips. Seatrade currently has a real back-haul cargo trade between Rotterdam and Suriname, this trade has been started one year ago and is already profitable. The vessels used on this back-haul trade are mainly destined for the Argentina to Europe trade and the ballast leg is significantly reduced by taking cargo to Suriname. New trades are being opened on a liner orientated way between Rotterdam and South Africa and one between Rotterdam and Argentina. Both appear to have the potential to attract enough general cargo to cover extra costs and make a profit. On these trades a lot of effort will be paid to attract containerised cargo as the vessels used will then be able to use their on-deck container capacity. Back-haul cargo increases the competitive position of Seatrade and knowledge is being gained in markets where Seatrade was not active before. The disadvantage is that in taking a good position in general back-haul cargoes, a more liner orientated schedule is needed and this reduces the flexibility of the vessels. However on several trades these backhaul cargo possibilities will certainly exceed the disadvantages of losing some flexibility of the vessels.
The 'Design School' method has been used to create a strategy for Seatrade. This method is ideal for a project in which one person has to analyse a market and draw up conclusions.
From the SWOT-analysis (Strengths-Weaknesses-Opportunities-Threats), the key-success factors in the environment and the distinctive competencies of Seatrade Reefer Chartering it can be conclude that Seatrade is in a good position to be a leading logistics provider to the reefer market.
Many ideas have been generated on possibilities for Seatrade in the future enviromnent. For the final strategy both the ideas, their pros and cons and the social responsibility and managerial values of Seatrade have been taken into account.
The strategy mainly consists of flve main focuses:
1. Create asset-less freight forwarder: Seatrade Logistics. 2. Increase activities in Asia.
3. Start more liner services & back-haul cargo.
4. Co-operation with other conventional reefer operators and fleet development. 5. Co-operation with container lines.
Seatrade Logistics should offer all logistical services to the clients. This to be able to offer each client a logistical package to his/her needs. Seatrade Logistics will make use of the vessels of Seatrade Reefer Chartering in the best way possible, but will not hesitate to use other shipping companies in case Seatrade Reefer Chartering cannot offer the right capacity in time. Seatrade Reefer Chartering however will keep contacts with some clients as for instance regarding clients who want a vessel on time charter.
Seatrade Logistics should focus on the possibilities in Asia and keep the strong position of Seatrade around the Atlantic. Asia should be looked at especially as this area is expected to be the main growing market in the future, while North America and Europe are expected to be mature regarding their seaborne reefer imports. In Asia currently the reefer containers are dominating, but with increasing volumes the opportunities for conventional reefer vessels to be competitive are there.
Through co-operation Seatrade Reefer Chartering and Seatrade Logistics should increase liner services on trades where the cargo volume allows such a service. Through these liner services the possibilities are there to generate general cargo as back-haul cargo. Back-haul cargo will reduce the ballast legs of Seatrade Reefer Chartering and generate a competitive advantage to other operators who sail into an area in ballast.
Seatrade Reefer Chartering should only start co-operation with other conventional reefer operators when the demand of her biggest client Seatrade Logistics is there. Cooperation should be focused on trade alliances or conferences to the example of the container lines, this in order to reduce costs and to achieve a stable freight-rate. If possibilities are there in Asia to get a co-operation with a conventional reefer operator then this could give Seatrade as a whole an ideal opportunity to gain reefer trades, knowledge and contacts in the emerging area of the future.
Co-operation with container lines also has to take place in close co-operation between the two Seatrade companies. Only trade-specific co-operation possibilities can be expected in the near future as there are still many differences between specialised reefer operators and container lines. In the far fature there might be a full co-operation between Seatrade and a container line, but this possibility should be monitored in the oncoming years.
Through this strategy Seatrade will have a bright future as a leading logisties provider to the reefer market and be extremely competitive in the future. Reports on Logistic Engineering (in Dutch)
