Does less trade 'twixt the US and China auger well for European Med ports as road and rail improves?
 The Mediterranean route is plagued with contradictions and contrary trends as it traverses the Year of Covid 19 that has had a huge impact on world shipping as well as everything else.
On the positive side, there are two trends of note. As overland infrastructure improves in southern Europe particularly on the rail side, with intermodal-friendly tunnels and bridges, there has been increasing interest among beneficial cargo owners (BCO) to short circuit Northern Range ports between Hamburg and Le Havre by landing containers at Med ports in Greece, Italy, France and Spain.
Rates have approached equality to Med ports and those of the Northern Range because the reasons that made the shorter route more costly have disappeared or have become less of a factor because of dredging and improved cargo handling facilities ashore as well as overland transport upgrades. All of which has encouraged trends to land more cargo from Piraeus to Algeciras.
Ahead of its time, the Port of Barcelona made the very same pitch to Hong Kong shippers in 2000. Abandon the circumnavigation of the Iberian Peninsula, urged Barcelona port officials, and simply rail your cargo from Spain into France. It made sense looking at a map. But back then Spanish rail gauges were different from the EU's, so the costings made no sense, however obvious it looked on the map.
Much has happened since though, as megaships grew to 24,000 TEU and Med ports could not dock anything bigger that 6,000 TEU. Sometimes shallow draft blocked entry; sometimes it was the lack of crane capacity or limited yard space or inadequate rail and road facilities. Thus, Asia-Med rates were higher because one had to deploy smaller ships to access these specialty ports.
But such factors are rapidly disappearing as drafts go to 16 metres and rail services improve, aided by inland infrastructure upgrades. True, 24,000-TEUer will have to pass by these ports, but the average size of ships today is 10,000-TEU and the some ports can take up to 16,000 TEU on average.
One downside, is the Covid crisis which has resulted in a decline of world trade, which in turn has meant a feverish quest for cost cutting.
This has resulted in a 15 per cent plunge in container traffic through the Suez Canal, reports Rome's ANSA (Agenzia Nazionale Stampa Associata). This induced containerships to use Africa's Cape of Good Hope cut costs, not only at the expense of Suez, but to European Med ports as well.
The Suez Canal reacted by bringing in a 17 per cent discount for containerships heading south and from 50 to 70 per cent discount for the US east coast-South Asia and South East Asia routes to encourage shipping companies not to opt for the longer route to save on toll costs.
More cargo wants to go to the east coast of North America via Suez, but now also via the Cape of Good Hope around the southern tip of Africa to avoid costly canal fees. What was once a virtuous circle of
more cargo breeding still more cargo has now reversed itself particularly when one subtracts tonnage diverted to the Cape route. With demand slackening, just-in-time becomes a fond memory of yesteryear as those four-corner Hot Point, Wallmart and Target distribution centres are well stocked and not starving for re-fills.
Transshipment demand in the Mediterranean since 2015 is divided into the western market (focused on Algeciras and Tangiers) the major Spanish gateway ports that handle significant transshipment (Valencia and Barcelona), the central Mediterranean hubs – dominated by Gioia Tauro and Malta – and the eastern Mediterranean (Egyptian ports plus Piraeus).
Demand has grown from 24.1 million TEU to 30.1 million TEU between 2015 and 2019. The major trends have been the increase in East Med volumes and market share and steady expansion in the combined volumes of the Gibraltar Straits terminals. But the central Med has been squeezed in terms of volume and market share.
Overall volumes in the Covid-hit first half of 2020 have fallen 6.5 per cent – this is a less severe decline than noted for Med gateway terminals. Smaller terminals have been more severely hit, with the squeeze on central Mediterranean ports intensifying. Piraeus and Tangiers have seen robust demand, despite the weaker broader position.
Another problem making the Suez route unattractive is the chance of having to rescue migrants crossing the Med in unseaworthy craft trying to get to Europe. This has compelled ships to take on migrants, 100 at a time mostly desperate military-aged men to be supervised by seafarers who number no more than 30.
Rather like Indian Ocean piracy, this is a problem that was much worse in the past. The response new populist governments has stemmed the flow by tightening up conditions of entry, ignoring accusations of heartlessness.
Since mid-summer 2017, migration shrank abruptly. The overall number of arrivals in southern Italy has declined, though deaths at sea remain just as high and new trans-Med migrant routes are being carved out, including from Tunisia, Algeria and Egypt. So while the risk is still there, it is far less of a risk than it was only a short time ago.
While the immediate past does not look good for Suez and the Med, it being so afflicted with Covid and its implications, this does not necessarily reflect the future. True, there is the aftermath of the Covid crisis to contend with - the revival of the world economy. But with the improvements of overland infrastructure from the consumer-rich northern range marketing area called the "blue banana" of Europe and as more dredging takes place, we may yet see mega ships calling at European Med ports. They may even drop off their loads, then cross the pond to the American east coast ports from Halifax to Houston.
Xi Jinping's China is becoming less and less popular in the west and less and less the likely to be the source of anything that can be sourced elsewhere, a trend that is already taking place. This means that much more will be sourced in South East Asia and the Indian subcontinent. And that likely means greater Suez and Med volumes as more cargo is likely to want to go that way to the US East Coast where many harbours have been dredged for mega ships in recent years.
So while the last year, and perhaps next year, do not look good for the Med trade, signs are good for clear sailing in the future, that is, barring unforeseen catastrophic events. |
