Intra-Asia: Getting a grip on the world's biggest but least remunerative container trade
 After nine years as CEO of MCC Transport, Maersk's Singapore-based intra-Asia unit, departing Tom Wickmann can look back on the biggest, most complex and least remunerative trade major league shipping has to offer.
"It's a charity," he says. "We were sailing the ships for free on many corridors. There is no contribution left to pay for the ships after paying for the variable costs.
"The freight rate only barely covers costs of moving the container onto the ship and off the ship again," said Mr Wickmann, who left Maersk last month after 27 years service.
"One of the scary parts about this is that the cost picture is as low as it has ever been. Chartering costs have never been lower and although the oil price has jumped a little, it is still very low from what we saw three, four years ago.
"So there is not much more we can do to sail our ship cheaper than what we are doing already. If we are not making money at present freight rates then what is going to happen if the oil price goes up or the THC [terminal handling charges] increases." he said.
Not only is there little money to be made, what little there is hard to get because the trade is so fiercely competitive, and very complex, he said.
Talk about competition. Just take one of the many intra-Asia submarkets - Korea, north China and east China, Russia, Cambodia and Thailand, he said.
"There are 97 weekly services in this market and 29 carriers. So the competitive scenario landscape is also very different from the long-haul trades.
"There are not many alliances but there are a lot of slot swaps and VSAs [vessel sharing agreements] going on in intra-Asia. We are faced with infrastructure challenges, but the problem is not so much the ports in themselves, but with the lack or poor quality of the infrastructure behind them," he said.
"It is not that the ports have to be ready for 18,000-TEU ships - the issue is that we are dealing with smaller ports and these smaller ports are growing - some quite fast.
"Those dealing with the Philippines know of the disaster when our ships were waiting two weeks just to get a berth. But this was not because of mis-performing terminals it was because of the infrastructure behind these ports that didn't work.
"Myanmar had 11-day holiday and Myanmar is growing. So what happens when you stop working for 11 days? If you have ever been to the Port of Rangoon it is in the middle of the city and there is no decent infrastructure behind," Mr Wickmann said.
"So very quickly, the ports were totally full and there we ended up waiting two weeks trying to get a berth.
"The worse place for us is Bangladesh where the ports are also swimming in containers which are still coming in and it is impossible to get a berth," Mr Wickmann said.
Still intra-Asia speaks volumes. One in four containers that moves around the world is carried in the intra-Asia trade, which has more than 70 shipping lines and 10,000 port pair. One estimate holds that the intra-Asia trade as a throughput of 40 million TEU a year.
Intra-Asia is expected to grow just three to four per cent a year. What is less evident is that growth is uneven.
"All the growth is coming from China. There is no growth from any of the other countries in the intra-Asia market," he said. "Taiwan and Japan have dropped by double digits on the intra-Asia trade, but China is such a dominant market that when China grows, the whole trade grows.”
Despite the weak growth, intra-Asia trade is still generally healthier than the major east-west trades, but that has spurred regional container lines to add services. It has also prompted major container lines to shore up their weaker volume in the major trades via intra-Asia services.
Hyundai Merchant Marine, which is bidding for the intra-Asia network of collapsed South Korean counterpart Hanjin Shipping, has said it will focus on the trade as it tries to return to profitability, and Thailand’s Regional Container Lines believes growth in Association of Southeast Asian Nations member states will start to bring supply and demand in the region into balance.
Hong Kong-based Orient Overseas Container Line has expanded its existing CHL service between China and Ho Chi Minh in Vietnam and Thailand gateway Laem Chabang, giving wider port coverage. Shanghai-based China United Lines recently began a new weekly service connecting Korea and China to Southeast Asia, and MCC Transport has improved Southeast Asia access to Cambodia while expanding Cambodia’s reach into North Asia.
Robert Sallons, managing director of CMA CGM’s intra-Asia specialist Cheng Lie Navigation Line, said intra-Asia consisted of hundreds of corridors where one or two carriers might have a big market share on some trades, and on other corridors many lines may only have a small market share.
But an area that has long been a concern in the regional Asian trade is infrastructure. Although trade is growing and the smaller ports are expanding berths and adding equipment, the infrastructure behind the ports is unable to handle the rising container volumes.
Increasing vessel frequency has become a way MCC mitigates port delays. "When a ship is delayed and has to omit a port, there is another ship coming just a couple of days later," said Mr Wickmann.
"With Bangladesh, the ships are waiting three to six days. You can add a ship to your service, but that doesn’t increase your capacity because it is just sitting there, waiting. It has only one effect for a shipping line, and that is additional cost.
“The alternative that we are doing in Bangladesh is to increase our frequency. We now have four and sometimes five vessels, so even though one ship is waiting, there is another on the way,” he said. “That adds capacity.”
Economists say that intra-Asia's troubles will diminish as urbanisation increases, which has historically been linked to rising affluence. They problem is that unlike other trades, the peoples of the intra-Asia market are among the poorest people in the world.
So while high volume intra-Asia trade can be characterised as poor2poor and the low volume transatlantic as rich2rich, the mid-level thriving and highly remunerative Asia-Europe and transpacific trades are poor2rich.
Getting intra-Asia from one stage to another seems inevitable, barring a global catastrophe. But even so it remains a matter of time. How much time will depend on how the universe unfolds.
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