01 December 2014

Article from Reefer Trends WEEK 48, 2014 – ISSUE 728

Reefer RoRo reflections:

The official Press Release heralding the mk II design states that the ship is, ‘intended for worldwide operation as a Reefer RoRo in the banana trade with special emphasis on a very low box rate, by very fast and efficient cargo handling in port which enables slow steaming.’ Reefer Trends understands that it has been re-designed specifically with the Central America to EU banana and pineapple trades in mind.

If this is the case, then with a capacity of 12,500 pallets to render the vessel fuel-efficient, at first glance there are only arguably three charterers capable of optimizing the use of the available capacity. Given that the only Central American country to supply the EU with any great volume of bananas and pineapples is Costa Rica, Del Monte would be one of the three because it has the critical mass. The other two are reefer operators Seatrade and Cool Carriers, both of whom run transatlantic liner services from the region.

But there are problems associated with all three: in virtue of its decision to sub-contract its fruit on a third party liner service for 2015, Del Monte appears to be moving away from its long-held supply chain model for shipments to Europe. Last year Del Monte also switched its West Africa to UK and N Cont fruit away from the AEL reefer service and into containers.

While Seatrade and Cool would also likely be interested, not least because of their extensive backhaul cargo connections, they would both presumably want to wait to see what impact the new US$1bn APM Terminals container terminal in Moin is going to have on reefer logistics and cargo market share in Costa Rica and perhaps an enlarged Panama Canal before considering an investment decision. It also remains to be seen whether Seatrade’s recent flirtation with the dark side morphs into a fully consummated relationship…

There are other transatlantic banana services, none of which independently has the critical mass of product required by the Reefer RoRo. However this would not preclude the majors from slot or space-sharing a service, as is anyway happening today. If a second loading port could be added without compromising the integrity of the service, this would bring Dole, Fyffes and Chiquita into play. To make the Reefer RoRo work from Colombia, the vessels would need to load containerized bananas from logistically challenged Turbo, while any service from Ecuador would require at least five vessels, and more with Ice Class if St Petersburg is the final destination. There is also the issue of port side logistics – how many terminals at either end of the chain could accommodate such an operation?

So, how long the status quo can be maintained remains to be seen. In the meantime any charterer or cargo interest that abdicates control or management of its supply chain loses a large part, and in some cases, all of its competitive advantage. Critically, if the majors decline the option of a space share on a dedicated reefer, they will find themselves slot-sharing on a third party liner service over which they have no control. And then what difference is there between a branded and a non-branded banana?

Without wishing to appear patronizing, it just needs a little imagination to understand the difference between ‘my supply chain’ and ‘the supply chain’ when analyzing strategic competitive advantage. The battleground has changed: the first fight the banana majors face is with their customers, not each other. Once this cost battle is won, they can focus on developing brand value.

No matter how hard the carriers try to change perceptions, a container service for reefers is and always will be little more than a box and a price – and while the prices on offer today may be low enough to buy business away from the reefer, no-one can surely be under any illusion that this will not change once any semblance of competition disappears, not least because the principal carriers have quite openly stated that their current Return On Investment on reefer is inadequate.

One final thought: if the container lines are genuinely interested in reefer as an end in itself rather than simply a means of increasing revenue by diversification, the Reefer RoRo would surely be a justifiable investment…?

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