Category: Warehouse

The European Commission (EC) has concluded that container shipping’s consortia block exemption regulation (BER) does not damage competition and should be extended for an additional four years.

The Consortia Block Exemption Regulation, the de facto legislation covering liner alliances and vessel-sharing agreements (VSAs) on container trades to and from Europe, was set to expire April 25, 2020.

However, the EU said Nov. 20 that, subject to a four-week “feedback period” running until Dec. 18, it favored extending BER for four years.

“EU rules normally prevent companies from working together in a way that might restrict competition, but companies shipping cargo by sea have been granted an exemption from this ban as they often need to work together to make their operations more financially viable and efficient,” said the EC decision.

“The EU is proposing to extend the regulation granting the exemption by another four years from when it expires in April 2020.”

Adoption of the new rules is planned for the first quarter of next year.

Shipper groups had been pushing for an end to BER, calling for more operational and pricing transparency from lines and claiming the block exemption offered no benefits to cargo owners.

However, after a lengthy consultation period running from Sept. 27 to Dec. 21, 2018, and after considering the input of numerous stakeholders including “carriers, shippers, logistic companies, freight-forwarding companies, port authorities and port service providers,” the EC’s competition directorate concluded that the BER “should be prolonged.”

A number of leading container lines and the World Shipping Council were contacted by FreightWaves for comment, but no responses were received by the time this article was published.

The commission had earlier found that liner shipping services, consisting of the provision of regular, scheduled maritime cargo transport on a specific route, require significant levels of investment and are therefore regularly provided by several shipping companies cooperating in consortia agreements.

“Consortia can lead to economies of scale and better utilization of the space of the vessels,” said the EC’s decision.

“A fair share of the benefits resulting from these efficiencies can be passed on to users of the shipping services in terms of better coverage of ports — improvement in the frequency of sailings and port calls — and better services (an improvement in scheduling, better or personalized services through the use of more modern vessels, equipment and port facilities).”

The EC decision had been expected earlier this year, but the appointment of European Commissioner for Competition Margrethe Vestager for a second term in September has brought renewed energy to the competition directorate.

The antitrust chief is certainly not shy of controversy or taking on high-profile adversaries in defense of fair competition. She has handed fines totaling €10 billion ($11.1 billion) to Google and Qualcomm after court rulings determined they had thwarted rivals.

This prompted President Trump to call her Europe’s “tax lady” who “hates the U.S.” earlier this year.

Vestager responded: “I’ve done my own fact-checking on the first part of that sentence, and I do work with tax and I am a woman, so this is 100% correct.

“But the second half of the sentence is not correct. I very much like the U.S.”

More articles by Mike

Tata Steel, the Indian steel manufacturer, has announced that it will be slashing 3,000 jobs across its operations in Europe, citing a global consumption slowdown and the uncertainty surrounding the U.K. general elections and Brexit that is scheduled to follow right after.

“Stagnant EU [European Union] steel demand and global overcapacity have been compounded by trade conflicts, which have turned the European market into a dumping ground for the world’s excess steel capacity,” said Tata Steel in its statement. 

Macroeconomic trends have been playing spoilsport in Europe, as major economies like Germany and the U.K. were caught in the throes of the deepening U.S.-China trade war and Brexit, dampening their construction, auto and manufacturing industries that consume the bulk of the steel manufactured in the region. 

Steel consumption in the EU fell by 2.5% year-on-year in the first quarter of 2019 – a trend coincidental with weakened exports and trickling investments. “Given these economic and market conditions, the European Commission needs to act now to adapt the steel safeguard measures to reflect these circumstances,” said Axel Eggert, the director-general of the European Steel Association (EUROFER). “The repeated rises in the size of the quota this year and next are completely out of step with the sluggish steel market.”

It is evident that this flattening of demand has hit Tata Steel, with Henrik Adam, the CEO of Tata Steel Europe, confirming that the company is facing conditions that are unprecedented in its history. 

The European market competitors of Tata Steel are not doing very well either, as they bear the brunt of an onslaught of cheaper steel supply coming in from Eastern economies like China and Russia. 

Last week, the Chinese steel production group Jingye took over troubled steelmaker British Steel, which helped save the company’s primary production plant in Scunthorpe, England. The deal, which is conjectured to be worth around £70 million, will allow 4,000 people to hold on to their jobs at the factory. 

Tata Steel’s fortunes have been no better, as the company continues to witness a bloodbath at the stock market, with its share prices decreasing by over 35% since April this year. The company announced that it saw a 90% decline in earnings before interest, tax, depreciation and amortisation (EBITDA) in the first six months since the start of its financial year in April 2019. 

In May, Tata Steel failed in its attempt to merge with German steel major ThyssenKrupp when the European Commission turned down the merger in an antitrust decision. ThyssenKrupp is not doing well either and plans to cut 6,000 jobs in a company-wide organizational shakeup. 

Meanwhile, the steelworkers’ trade union in the U.K. is protesting Tata Steel’s job cuts that are centred around the Port Talbot steelworks in England. “This is a shocking announcement, which will worry many steelworkers and their families in the U.K. and across Europe,” said Roy Rickhuss, the general secretary of the union. “This news has been badly handled and the company should hang its head in shame with the way this development has been communicated.”

That said, the operations of Tata Steel in recent years have mirrored its struggle to match its competition in Europe and more importantly, its inability to best the Chinese steel production juggernaut that is making huge inroads in the European market. 

In September, Tata Steel announced that it would shut down the Orb Electrical Steels plant in Newport, Wales, which left over 400 employees without work. The company also sold British Steel to Greybull Capital in 2016, which became insolvent earlier this year due to continuing weak market demand and political uncertainty. Now, with British Steel being taken over by the Chinese firm Jingye, the ownership of the illustrious Scunthorpe steel plant has come full circle. 

DHL Express has opened a new logistics center in western Germany that will help meet the rising demand across Europe for express e-commerce shipments.

Located at Cologne-Bonn Airport, the 15,000-square meter (m²) hub features cutting edge sorting technology and entailed an investment by DHL of 123 million euros ($136 million).

“We expect continued growth in
the coming years, especially in cross-border e-commerce trade,” explained
Travis Cobb, DHL Express’ Executive Vice President of Global Network Operations.

In the hub’s sorting center, the
embrace of new technologies including 3D scanners and vacuum lifters enables
DHL Express to process up to 20,000 shipments per hour on its 2.5 kilometer
conveyor belt.

The Cologne hub also uses an innovative ice-energy-storage system to heat and cool the 12,000 m² warehouse and offices (3,000 m²). The system uses 1.3 million liters of storage capacity and 18 kilometers of piping to ensure the hub stays cool in the summer and warm in the winter.

Combined with a heat pump and solar panels on the roof, the new facility is entirely emissions-free, according to DHL.

“The €123 million investment in
our new hub clearly shows our commitment to the Cologne-Bonn region and ensures
the future of a lot of jobs here,” said Detlef Schmitz, Managing Director of
the DHL Express hub.

“With the new direct route
between Hong Kong and Cologne, 28 daily flight movements, and our use of
state-of-the-art technologies, we are proud to be contributing – sustainably –
to the worldwide growth of DHL Express,” said Schmitz.

The Cologne hub opening continues DHL’s aggressive expansion in Europe. As reported in FreightWaves yesterday (18 November), the Deutsche Post DHL Group (STOCK.DPSGY) has also now opened a new mega-sized parcel center in Germany as it continues to strengthen its network.

When it reaches full capacity next year, the Ruhr region facility will create some 600 jobs and offer sorting capacity of up to 50,000 shipments per hour.

“The Bochum parcel center, along with the Obertshausen parcel
center near Frankfurt am Main, which opened in 2016, is the largest DHL parcel
center in Germany and also one of the most efficient parcel centers in all of
Europe,” said a DHL statement.

John Pearson, CEO of DHL Express, said the technologies deployed at the new hubs were indicative of the innovation that would be central to the company’s new ‘Strategy 2025.’

“We can only grow by ensuring top
quality, which is why we invest more than a billion euros each year in employee
training, infrastructure and digitalization,” he added.

“The main goal here is to increase our transport and delivery capacity for time-sensitive TDI (Time Definite International) shipments to meet the forever-growing customer demand in the area of e-commerce,” he said. “At the same time, we’re continuously improving on process efficiency.”

DHL Express now operates 23 hubs
across its express network, which also includes over 260 dedicated aircraft, 17
partner airlines, and a capacity for over 3,000 flights daily to over 500
airports.

In 2018, the company announced
its plans to add 14 new Boeing 777 aircraft to its own fleet.

“By modernizing our air fleet, we can increase the number of our intercontinental connections and do this with reduced carbon emissions and less fuel consumption,” said Cobb. “Next year we will deploy another six brand-new planes from our Boeing order.”

More articles by Mike

Container shipping’s drug problem will just not go away. After a string of police busts in the U.S. this year, the focus has switched to European ports in recent months.

As reported in FreightWaves, a record 1,279 kilograms of heroin with a street value of £130 million ($148 million) was seized at the port of Felixstowe, England, on Aug. 30.

Italian police topped that value earlier this week when 1,176 kilograms of cocaine worth 250 million euros ($275 million) was found in a reefer container (pictured above; source: Europol) with Mediterranean Shipping Company (MSC) branding at the Port of Gioia Tauro, a container shipping hub in southwest Italy.

Europol said the Italian Carabinieri (Carabinieri) and the Italian Finance Corps (Guardia di Finanza), supported by Italian Customs, Europol and Frontex, seized the drugs Nov. 11.

‘Ndrangheta mafia to blame

“This seizure confirms the port of Gioia Tauro as a major hub for the transit of cocaine trafficked to western Europe,” said a statement from Europol.

“This is also shown in other recent Italian investigations against ‘Ndrangheta criminal structures active in the transnational cocaine trafficking.”

Shipping documents indicated the box was destined for Germany. 

The seized cocaine was hidden in 144 packages within a case of
bananas stored in a refrigerated container. The drugs were detected after the
Italian Finance Corps and Customs authorities performed an extensive risk
analysis of several vessels and containers arriving at the port of Gioia Tauro.
The case was then referred to the Anti-mafia District Prosecution Office.

In the past 12 months alone, the Italian Finance Corps and the Customs Agency have seized over 2.5 tonnes of cocaine at Gioia Tauro.

Europol and Frontex provided technical and operational
assistance in the investigation that preceded the seizure. “The early
deployment on-the-spot of Europol experts facilitated the immediate exchange of
information with other potentially affected EU Member States,” added Europol.

No response about the ownership of the box was forthcoming from MSC at the time this article was published.

Europol could not confirm if the container was MSC-owned when contacted by FreightWaves.

Container shipping’s drug problem

The use of container shipping for drug smuggling has become a global issue during 2019. The Aug. 30 heroin seizure from a Maersk vessel at the port of Felixstowe followed the seizure of 398 kg of heroin from a vessel at the same U.K. gateway Aug. 2.

At the Port of
Lazaro Cardenas in Michoacan, Mexico, 23,368 kilos of fentanyl arriving from China were found
on the Svendborg Maersk on Aug. 23.

In the U.S., the Port of
Philadelphia was the scene of a record cocaine bust in June, the second U.S.
drug bust this year involving a container ship operated by MSC.

MSC released a statement that it “has a long-standing history of
cooperating with U.S. federal law enforcement agencies to help disrupt illegal
narcotics trafficking and works closely with U.S. Customs and Border Protection.

“Unfortunately, shipping and logistics companies are from time
to time affected by trafficking problems,” it added.

Globalization fuels smuggling

The rising tide of drug smuggling in large quantities using
containers has long been predicted as a likely consequence of globalization.

The Stockholm International Peace Research Institute (SIPRI)
issued a policy paper in 2012 predicting the global shipping industry would be
used for the transport of narcotics, arms and other illicit cargo. The authors,
Hugh Griffiths and Michael Jenks, pointed to a particular risk in future years
for the container shipping industry.

“Maritime trade is one of the pillars of globalization. As new
economic powers emerge and new trading links are forged, maritime trade will
continue to expand,” they wrote. “Understandably, governments will continue to
weigh the benefits of stricter controls on the shipping industry against the
significant costs of jeopardizing their countries’ involvement in the maritime
trade.”

Drugs – just another boxed commodity

According to the SIPRI report, “Maritime trade has always
included a share of illicit activity. However, the advent of containerization
in particular has given maritime traffickers unprecedented opportunities to
integrate their activities into the global supply chain. 

“Containerization provides trafficking with the same cost- and
time-saving transport mechanisms that have allowed the world’s multinational
companies to deliver their products quickly and cheaply, penetrate new markets
and expand their global customer base,” the report said.

“It is likely that, at least as long as the trend toward containerization continues in the licit portion of maritime trade, containers will increasingly be used for many sorts of trafficked commodities – and mainstream companies will increasingly become unwitting accomplices of the traffickers.”

More articles by Mike

Deutsche Post DHL Group (STOCK.DPSGY) has opened a new mega parcel center in Germany as it continues to strengthen its parcel network in Europe.

When it reaches full capacity next year, the Ruhr region facility will create some 600 jobs and offer sorting capacity of up to 50,000 shipments per hour.

“The Bochum parcel center, along with the Obertshausen parcel center near Frankfurt am Main, which opened in 2016, is the largest DHL parcel center in Germany and also one of the most efficient parcel centers in all of Europe,” said a DHL statement.

Foundations by Opel

In 2016, Deutsche Post DHL Group acquired approximately 140,000 square meters of space at the former Opel site in Bochum-Laer. Construction of the parcel center began in fall 2017 and was completed on schedule within two years.

“The new parcel center building alone covers an area of 40,000 square meters, equivalent to the size of more than five football fields,” said DHL, which would not reveal the investment cost but said it totaled a “three-digit million sum.”

At the Bochum center, DHL uses directly employed workers, “thereby setting itself apart from many other companies in the industry.” 

Support for peak season

DHL added, “With currently more than 20,000 sorted items per hour, the Bochum parcel center is already providing major support for the fast and reliable processing of shipments in the Ruhr region in the run-up to the 2019 Christmas period.

“The new parcel center is thus also supporting Deutsche Post DHL’s ongoing quality initiative in Germany, which, in the current year, has already resulted in a significant reduction in the number of complaints and an improvement in the company’s customer-care service.” 

DHL took extensive measures to ensure the new center is as energy efficient as possible in line with the group’s sustainability strategy. For example, the parcel center is supplied with electricity and heat by its own block-type thermal power station.

Sustainability measures

DHL feeds the heat generated in the block-type thermal power station back into Bochum’s public utility network. “A roof-mounted photovoltaic system is also planned,” said a statement.

“Power-saving LED lamps controlled by presence detectors and daylight are used to illuminate the parcel center. With 35 charging columns of its own, the Bochum location is already well-equipped for the further expansion of e-mobility, with further charging columns to follow.”

Including the new location in Bochum, Deutsche Post DHL Group operates a network of 36 parcel centers in Germany, in which around 1.2 million items can be sorted during every hour of operation.

Deutsche Post DHL Group already ships an average of around 5 million parcel items for its customers nationwide every working day. “On peak days before Christmas, the number climbs to as many as 11 million parcels per day,” said a statement.

More articles by Mike

Mediterranean Shipping Company (MSC) and Maersk might be partners in the 2M Alliance, a vessel-sharing agreement on the Asia-Europe, trans-Pacific and trans-Atlantic trades, but the world’s two largest container ship operators are also fierce competitors.

That rivalry will shift up a gear this week if 45-year old Soren Toft is, as expected, confirmed as MSC’s new CEO for container operations following his abrupt Nov. 11 departure from Maersk where he had served as chief operating officer since 2014.

MSC poaches Toft

Maersk announced Toft’s departure to “pursue an opportunity outside the company,” but the executive reportedly told Danish media he had accepted a CEO role at an unidentified company.

Neither MSC or Maersk (CPH: MAERSK-B), which reported solid third quarter results Nov. 15, would comment when approached. However, a number of shipping insiders contacted by FreightWaves said they expected MSC to announce Toft would join the company in the coming days, and The Wall Street Journal reported the appointment as a done deal Nov. 15.

Aponte to step aside?

Diego Aponte is MSC’s current president and CEO while his father Gianluigi Aponte, the controlling shareholder of privately held MSC which he founded in 1970, is the carrier’s chairman.

If Toft’s appointment as CEO is confirmed, it is expected that Diego Aponte will become chairman and Gianluigi Aponte will step down.

Fleet wars: Maersk vs MSC

At the start of 2019 there were suggestions that MSC’s extensive orderbook could soon see it surpass Maersk as the world’s largest container line. With Toft looking like he has jumped ship to join the pretender to the Danish shipping giant’s crown, what better time to compare their respective fleets.

Maersk’s fleet on Sept. 30 amounted to 307 owned vessels with 2.2 million twenty-foot equivalent units (TEUs) capacity and 396 chartered vessels totaling 1.9 million TEU capacity. The line’s total fleet at the end of the third quarter therefore totaled 703 vessels, down from the record of 781 vessels operated in the fourth quarter of 2017. Maersk’s total capacity of 4.1 million TEU on Sept. 30 was down 3.6% year-over-year.

MSC told FreightWaves its current fleet of vessels within the size range of 2,000 TEU capacity to 23,756 TEU totaled 520 ships leaving it short of Maersk on ship numbers, although MSC boasts larger average vessel size (see chart below). Asked how many of its existing fleet is chartered tonnage, a spokesman for MSC replied a “significant portion.”

One line to rule them all

Analyzing both fleets on Nov. 18, Alphaliner said MSC’s fleet had a total capacity of 3.8 million TEU capacity, significantly smaller than the almost 4.2 million TEU operated by Maersk.

As a result Alphaliner ranks Maersk in top spot with around 17.8% of total global capacity, followed by MSC with a 15.9% market share.

New vessel deliveries

MSC does, however, boast a far more substantial pipeline of newbuildings (see Alphaliner rankings below). In the short-term, the Geneva-based carrier has three 23,000 TEU vessels on order (the MSC Sixin, MSC Ambra and MSC Febe) and one 14,300-TEU vessel (MSC Kanoko) to be delivered by the end of January 2020 with more to follow thereafter.

Maersk’s current owned-newbuilding program is limited with just six vessels on order with a combined capacity of 74,438 TEU.

“We continuously review our fleet composition to ensure it caters to our growth strategy and operational needs,” said a Maersk spokesman. “With more than 20% of our fleet capacity on short-term charter contracts, we have the flexibility to adjust our fleet to future market developments.”

As for future growth ambitions? “We have throughout the year guided that we are targeting profitable growth and have the ambition to maintain a fleet of around 4 million TEU,” said the Maersk spokesman.

Although MSC has a far bigger orderbook, FreightWaves understands that as those vessels join the fleet, chartered vessels will be released. Is it possible that Toft might implement a different strategy that sees MSC vie to take Maersk’s mantle? Time will tell.

Best of the rest

Behind the top two carriers there is a rapid drop-off in fleet size. In third place is COSCO Group with total fleet capacity of almost 3 million TEU and 12.5% of global capacity. CMA CGM (2.7 million TEU fleet capacity; 11.3% market share) is fourth, followed by Hapag-Lloyd – which again recorded excellent results in the third quarter – in fifth position (1.7 million TEU; 7.2%).

The top 10 is rounded out by Ocean Network Express (1.6 million TEU; 6.7%), Evergreen (1.3 million TEU; 5.5%), Yang Ming (648,343 TEU; 2.8%), Pacific International Line (393,498 TEU; 1.7%) and Hyundai Merchant Marine (377,972 TEU; 1.6%).

Maersk mafia

As Lars Jensen, CEO of SeaIntelligence Consulting, told FreightWaves last week, should Toft take the reins at MSC, Maersk veterans will dominate a huge proportion of global container shipping capacity.

“Not only is the Danish company – of course – run by one of its own people, but the CEOs of MSC, Hapag-Lloyd and ONE will also all have a background at Maersk,” he said.

“Rolf Habben Jansen (CEO of Hapag-Lloyd) was CEO of Damco within Maersk from 2009 to 2014 and Jeremy Nixon [the CEO of] ONE was vice president in Maersk from 2005-2008 where he came in following the acquisition of P&O Nedlloyd.

“These four carriers combined control almost 50% of the global container shipping capacity.”

Sulaibiya, Kuwait-based global logistics company Agility (DFM: AGLTY) has reported 400.70 million Kuwaiti dinars ($1.32 billion) in third quarter revenues for the three months through September. That’s an increase of 1.6% on the corresponding period in 2018.

Earnings before interest, tax, depreciation and amortization, or EBITDA, stood at 47.40 million dinars ($155.78 million), a 20.92% year-over-year increase on the third quarter of 2018.

Agility also reported an 8.5% increase in net profit of 21.7 million dinars ($71.32 million).

“Our Infrastructure portfolio of companies drove our results in the third quarter, with all major entities seeing growth. Our Global Integrated Logistics (GIL) business, on the other hand, was affected by challenging market conditions and trade-war headwinds that have affected the industry as a whole. Even so, GIL is moving forward aggressively with its digitization agenda to improve operational efficiency and drive a better customer experience,” said Tarek Sultan, Agility Vice Chairman and CEO.

Agility Global Integrated Logistics

GIL reported 285 million dinars ($936.70 million) of gross revenues in the third quarter, which was a 2.4% year-on-year decline. This decrease was attributed to “challenges in the freight forwarding industry,” the company said.

EBITDA was 7.8 million dinars ($25.64 million), which was a 1% decrease from the same period in 2018. “The decrease was due to higher operating expenses related to new facilities, as well as investments in digital transformation,” the company said.

GIL also revealed some details of the cargo volumes it moved during the third quarter.

Air freight volumes fell by 15.8% due to “trade concerns” and lower demand that crossed both sectoral and geographical borders. However, the company said, the decline in volume was offset by higher yields, so GIL’s air freight revenues rose by 2.8% even though volumes fell.

Ocean freight volumes (ocean shipping containers in twenty-foot equivalent units) fell by a hefty 9.3% but, like air freight, yields improved by 13.7% year-over-year. Yields were said to be “strongest” in the Americas and Europe. Ocean freight revenues improved by 3.2% due to higher yields.

Agility Infrastructure

The company’s infrastructure division reported revenues of 119.7 million dinars ($393.41 million), which is an increase of 13.4%. The division also reported EBITDA of 32.60 million dinars ($107.14 million), which the company said was a 3.8% increase on the third quarter of 2018.

Revenue growth was driven by Agility Logistics Parks, which saw increased revenues from facilities completed in 2018. The division has about $1.5 billion of real estate assets, including 20 million square meters of land and over three million square meters of logistics facilities. It operates through the Middle East, Africa and South Asia.

Other businesses within Agility include Dubai-based Tristar, which posted 9.6% revenue growth. Tristar is an integrated liquid logistics company, which works across 20 different countries in the trucking, ocean shipping, coastal bunkering, retail fuel, specialized warehousing, and aviation fuel supply. Tristar predominantly works in the Middle East and Africa with some operations in the Carribbean, the U.S. and Pakistan.

Another business in the Agility Infrastructure division includes National Aviation Services, which offers ground handling, cargo management, lounges and airport services. It reported revenue growth of 8.5% in the third quarter.

Container shipping’s drug problem will just not go away. After a string of police busts in the U.S. this year, the focus has switched to European ports in recent months.

As reported in FreightWaves, a record 1,279 kilograms of heroin with a street value of £130 million ($148 million) was seized at the port of Felixstowe, England, on Aug. 30.

Italian police topped that value earlier this week when 1,176 kilograms of cocaine worth 250 million euros ($275 million) was found in a reefer container (pictured above; source: Europol) with Mediterranean Shipping Company (MSC) branding at the Port of Gioia Tauro, a container shipping hub in southwest Italy.

Europol said the Italian Carabinieri (Carabinieri) and the Italian Finance Corps (Guardia di Finanza), supported by Italian Customs, Europol and Frontex, seized the drugs Nov. 11.

‘Ndrangheta mafia to blame

“This seizure confirms the port of Gioia Tauro as a major hub for the transit of cocaine trafficked to western Europe,” said a statement from Europol.

“This is also shown in other recent Italian investigations against ‘Ndrangheta criminal structures active in the transnational cocaine trafficking.”

Shipping documents indicated the box was destined for Germany. 

The seized cocaine was hidden in 144 packages within a case of
bananas stored in a refrigerated container. The drugs were detected after the
Italian Finance Corps and Customs authorities performed an extensive risk
analysis of several vessels and containers arriving at the port of Gioia Tauro.
The case was then referred to the Anti-mafia District Prosecution Office.

In the past 12 months alone, the Italian Finance Corps and the Customs Agency have seized over 2.5 tonnes of cocaine at Gioia Tauro.

Europol and Frontex provided technical and operational
assistance in the investigation that preceded the seizure. “The early
deployment on-the-spot of Europol experts facilitated the immediate exchange of
information with other potentially affected EU Member States,” added Europol.

No response about the ownership of the box was forthcoming from MSC at the time this article was published.

Europol could not confirm if the container was MSC-owned when contacted by FreightWaves.

Container shipping’s drug problem

The use of
container shipping for drug smuggling has become a global issue during 2019.
The Aug. 30 heroin seizure from a Maersk vessel at the port of Felixstowe
August 30 followed the seizure of 398 kg of heroin from a vessel at the
same U.K. gateway Aug. 2.

At the Port of
Lazaro Cardenas in Michoacan, Mexico, 23,368 kilos of fentanyl arriving from China were found
on the Svendborg Maersk on Aug. 23.

In the U.S., the Port of
Philadelphia was the scene of a record cocaine bust in June, the second U.S.
drug bust this year involving a container ship operated by MSC.

MSC released a statement that it “has a long-standing history of
cooperating with U.S. federal law enforcement agencies to help disrupt illegal
narcotics trafficking and works closely with U.S. Customs and Border Protection.

“Unfortunately, shipping and logistics companies are from time
to time affected by trafficking problems,” it added.

Globalization fuels smuggling

The rising tide of drug smuggling in large quantities using
containers has long been predicted as a likely consequence of globalization.

The Stockholm International Peace Research Institute (SIPRI)
issued a policy paper in 2012 predicting the global shipping industry would be
used for the transport of narcotics, arms and other illicit cargo. The authors,
Hugh Griffiths and Michael Jenks, pointed to a particular risk in future years
for the container shipping industry.

“Maritime trade is one of the pillars of globalization. As new
economic powers emerge and new trading links are forged, maritime trade will
continue to expand,” they wrote. “Understandably, governments will continue to
weigh the benefits of stricter controls on the shipping industry against the
significant costs of jeopardizing their countries’ involvement in the maritime
trade.”

Drugs – just another boxed commodity

According to the SIPRI report, “Maritime trade has always
included a share of illicit activity. However, the advent of containerization
in particular has given maritime traffickers unprecedented opportunities to
integrate their activities into the global supply chain. 

“Containerization provides trafficking with the same cost- and
time-saving transport mechanisms that have allowed the world’s multinational
companies to deliver their products quickly and cheaply, penetrate new markets
and expand their global customer base,” the report said.

“It is likely that, at least as long as the trend toward containerization continues in the licit portion of maritime trade, containers will increasingly be used for many sorts of trafficked commodities – and mainstream companies will increasingly become unwitting accomplices of the traffickers.”

Morearticles by Mike

Could Soren Toft – who was the chief operating officer of Maersk
until Nov. 11 – have jumped ship and joined the Danish shipping
giant’s rival MSC?

Switzerland-based MSC, a partner of Maersk in the 2M alliance, refused to respond when FreightWaves asked if, as widely rumored, the 45-year old Toft will be announced as the company’s new CEO next week. Diego Aponte, the son of controlling shareholder Gianluigi Aponte, is the carrier’s current president and CEO.

Maersk CEO Soren Skou also refused to comment when asked about Toft this morning as he reported solid third quarter results for the container line.

A number of
shipping insiders contacted by FreightWaves said they believed MSC would make
the announcement that Toft would join the company in the coming days.

Speaking on
condition of anonymity, one said, “I can’t believe it, but I’m hearing that is
indeed the case.”

A ship manager
familiar with both lines said, “that is what I’m told.”

Another source
said, “It would be a good appointment, but walking into the enemy camp within
hours is more surprising.”

Simon Heaney, senior manager for container research at Drewry, told FreightWaves that if Toft does surface at MSC, then the
manner of his departure from Denmark-based Maersk will be the biggest shock.

“I’m quite surprised that Maersk didn’t insert some sort of
handcuff clause preventing him from joining a direct rival,” he said. “But it’s
actually quite common for top Maersk execs to take leading jobs elsewhere and
Toft certainly served his time.”

The Maersk mafia

The latter point was also noted by Lars Jensen, CEO of
SeaIntelligence Consulting.

“Not only is the Danish company – of course – run by one of their own people, but the CEOs of MSC, Hapag-Lloyd and ONE will also all have a background at Maersk.”

Jensen explained, “Rolf Habben Jansen (CEO of Hapag-Lloyd) was CEO
of Damco within Maersk from 2009 to 2014 and Jeremy Nixon [the CEO of] ONE was
Vice President in Maersk from 2005-2008 where he came in following the
acquisition of P&O Nedlloyd.

“These four carriers combined control almost 50% of the global container shipping capacity.”

A Maersk spokesman did not comment when asked if
Toft had defected to MSC but insisted the rumors were being fueled by a shipping website and were based
on “anonymous industry sources.”

He added, “As for the future of
Søren Toft, we do not have further to add to the announcement we shared on
Monday,” he added.

Toft ‘ghosted’ from Q3 results

The only mention of Toft in the third quarter results presentation by A.P. Moller – Maersk this morning was the following: “On 11 November 2019, it was announced that Søren Toft, COO, has left A.P. Moller – Maersk to pursue an opportunity outside the company. Søren Skou, CEO has taken on the responsibilities of the COO in the interim.”

Toft’s departure from Maersk was so sudden that his biography is
still listed on Maersk’s website. It notes that, prior to being appointed COO
in 2014, Toft “held various commercial and operational roles both in
headquarters, Germany and Indonesia before his appointment as Head of Network
Planning in Maersk, a position he held until 2014”.

It adds, “Søren Toft has also overseen the acquisition and
integration of Hamburg Süd. The deal closed in the fourth quarter of 2017, and
he is now Board Member of the Advisory Board in Hamburg Süd.”

More FreightWaves articles by Mike

At the World Trade Organization meeting in Geneva, major economic powers like the U.S., India and Brazil that trade with the U.K. have raised concerns on the uncertainty surrounding Brexit, as their commercial losses mount over the extension of the divorce deadline. 

While the spotlight on Brexit has largely revolved around trade complications that will arise between the U.K. and the European Union (EU), seldom have the disruptions that this decision causes to countries trading with these two economic powerhouses been discussed. 

The subject of contention is a WTO system called the “tariff-rate quotas” that currently allows member countries to strike specific tariff slabs on their imports – depending on the product and the volumes being traded. This has permitted long-term major trade partners to export goods at minimized tariffs, with certain products carrying zero tariffs. 

But with Brexit on the horizon, the dynamics behind this seamless trade arrangement with the EU falters as trade partners are unclear if they could hold on to their tariff advantage post-divorce.  

In the case of India, roughly 16.5% of its export value to the U.K. is clothing apparel, amounting to over $1.6 billion in trade. Large swathes of this market are taken up by small- and mid-tier businesses that are currently at a loss on how the tariffs will play out after the Brexit fallout. 

Australia has come out strongly against the erratically changing Brexit deadline. Australian authorities cited businesses that have stopped exporting beef and sheep meat, unsure if they would manage to hold on to their tariff rate quotas during Christmas – decisions taken based on the previously ordained Oct. 31 deadline. Australia further claimed that businesses had been visibly affected across every single extension that was given to the U.K. to muster a deal. 

For the U.S., it is about losing privileged access at reduced tariffs to the U.K. for exports like pizza cheese, pork and wine. “We will be quickly crowded out and face a loss of access to both markets,” said the U.S. in a statement at the WTO meeting. Brazil is not happy with the proceedings either, which is evident as the country stands to witness contractions on its soybean and meat exports to the U.K. 

New Zealand questioned the quota split post-Brexit, pointing out that it will be hard for WTO members to continue accessing both the U.K. and the EU markets like before. It asked both parties to sit together and create quotas that are explicitly reserved for WTO members to continue trading as before or to expand on the existing trade quotas to help foster larger bilateral growth. 

The tariff rate quotes also pose an additional challenge, as they are determined for the whole of the EU and not specifically for the U.K., which will no longer be the case after Brexit. Trading partners are concerned that dividing the quota would be an issue if either of the two parties decides to trample on the quotas of the other. This might lead to a lopsided advantage for either the U.K. or the EU, which might increase or decrease favorability of trade access to non-EU countries.  

Blaming this uncertainty, countries have approached the WTO for compensation from both the U.K. and the EU if the tariff rate quotas are not split in a way that benefits the two parties on either side of the English channel equally, while simultaneously making sure it does not hinder trade with non-EU nations. 

The current deadline for Brexit is Jan. 31, 2020, but the U.K. will go to vote on Dec. 12 as decided by the British Parliament and also continue holding talks with the EU to negotiate on a  deal.