OOCL and partners take Cape route to cut costs and capacity

PUBLISHED : Tuesday, 24 February, 2009, 12:00am
UPDATED : Tuesday, 24 February, 2009, 12:00am

Orient Overseas Container Lines (OOCL) and its partners in the Grand Alliance announced yesterday a rerouting of one of its Asia-Europe services to save on costs and cut the effective capacity of vessels.

Ten vessels, each with a capacity of more than 8,000 20-foot equivalent units (teu), would now sail around the Cape of Good Hope on their east-bound voyage instead of through the Suez Canal, OOCL said. The rerouting began yesterday.

Hapag-Lloyd, MISC, Nippon Yusen Kaisha and OOCL operate the ships of the alliance. .

The alliance, a grouping of shipping lines sharing capacity, is considering applying to reroute all the eastbound services on that trading lane, said Stanley Shen, a spokesman for OOCL.

Freight rates on Asia-Europe trade have plummeted to a 10-year low of about US$300 per teu.

Lukewarm demand for cargo had led to losses at OOCL for the two months to January, JP Morgan said in a report.

The rerouting would mean an additional week for each voyage on the service, the normal turnaround time of which is 55 to 60 days.

The route around the Cape is cheaper because the toll fee for using the Suez Canal is US$600,000 to US$700,000 per transit. Lower bunker costs have also made the longer voyage more economical, as oil prices have plummeted more than 70 per cent from their peak last year.

Mediterranean Shipping has already adopted the rerouting, while CMA CGM is considering implementing it. The French shipping line said the rerouting could help save US$330,000 per vessel and US$2.6 million per loop service. The annual savings per loop would amount to US$17 million.

Apart from cost savings, the longer voyage could decrease the effective capacity of vessels.

Alphaliner, an international shipping research organisation, forecast net fleet growth of about 14 per cent this year, compared with a 4 per cent decrease on the Asia-Europe trade.

Instead of idling the vessels at sea, shipping firms tended to use longer voyages to cut excess capacity, an analyst said.

Longer but cheaper
Annual savings per loop on new route estimated at US$17 million
The number of vessels that the Grand Alliance deploys on the new route: 10