SECTOR UPDATE - REEFER - SEPT 08
UPDATE: REEFER - SOUTHERN AFRICA - SEPT 2008
Southern Africa reefer market
• Safmarine is a market leader in the transportation of fruit and vegetables from South Africa. The line also carries significant volumes of seafood, meat, fruits, vegetables, chemicals and pharmaceuticals under temperature control on both the East-West and North-South corridors
• South Africa is also the major player in the Sub-Saharan Africa market, accounting for accounts for 80% of Africa's outbound reefer trade, followed by Senegal, Ghana, Ivory Coast, Kenya and Mauritius.
• 2007 was a very good year for the South African reefer industry with reefer traffic to northern Europe amassing over 100 000 FEU (container and conventional). Containers accounted for just over 70% of the total volumes moved.
• According to the PPECB, containerized volumes out of South Africa are commanding some 72% of citrus exports, while between 80% and 90% of the deciduous market has been converted from breakbulk/conventional to reefer containers. (This phenomenon does not however point to the demise of conventional shipping, which is preferred for shipment of fruits such as bananas etc).
• While the range of perishable products exported out of South Africa is expanding, Safmarine's Reefer Executive, Jan Kruger does not believe there will be too many changes in the overall mix given the dominance of crops such as apples, pears and oranges. Currently, citrus and deciduous account for approximately 55% and 45% of all export volumes; the remaining 5% is made up mainly of avocadoes, meat and fish. There has also been strong growth in vegetable and flowers, which are niche produce and mostly air-freighted.
• Safmarine's reefer services to Europe and the Middle East grew at the expense of North America and the Far East during the first six months of 2008, driven by favourable citrus prices, particularly for lemons, in Europe.
• Safmarine's reefer volumes to the Middle East have also risen significantly since 2007. Says Kruger: 'The high oil and gas prices mean that consumers in these countries have more disposable income and some of this is being used to buy more fresh fruit and vegetables. The region is also a natural market for South African produce given its geographical location and the focus on food miles and the carbon footprint."
• The Far East market has also opened up, with South African grape producers, in particular, having experienced strong sales in several countries.
South Africa imports mainly frozen beef and poultry from Brazil and Argentina (Namibia is second with the same commodities)
• Angola imports mainly frozen South American meat products and a significant trade from Europe, from Portugal's connection with Angola.
Trend: More perishables in containers
• More and more fruit is being shipped in containers (reefers) as opposed to refrigerated vessels (conventional). This is because the use of containers has become more price-competitive, largely due to the current shortage of conventional space which has resulted in freight rates, per pallet, being higher for conventional vessels compared to containers.
• Additional reasons for the increased popularity of reefer containers include an unbroken cold chain; the fact that the produce is subjected to limited handling and therefore suffers minimal, if any, damage; and the preference for shippers to ship the produce from door to door, instead of port to port.
• Also of growing importance to producers is the use of scheduled, liner shipping services vs tramping services.
• The past decade (since 1998) has seen a steady shift to reefer containers, with deregulation of South Africa's centralised citrus and deciduous fruit producer/marketing boards, the increased influence of SA fruit exporters in the freight contracting process and the lack of investment in new specialised reefer ships significant factors in the process.
• Improvements in post-harvest treatment and refrigeration technology have also extended the shelf life of several products, allowing these products to travel over long distances by sea. These offer opportunities for increased business.
• Reefer shipments have been impacted by the high oil price since an increase in fuel costs increases the cost of shipping perishable goods.
• Safmarine's floating bunker adjustment factor is directly linked to the price of oil, therefore a higher oil price means an increased BAF, for which the customer is responsible.
• The new floating BAF calculation has been implemented on Safmarine's North America, Middle East and Far East services thus far, other trades are also to be incorporated in the near future, including the Europe service, which accounts for more than half Safmarine's reefer volumes out of South Africa.
• Forecasting and planning are important factors for the reefer shipping industry, as is regular communication between industry players. In the fresh produce sector forecasting is extremely important and this is best done collectively, involving both shipping lines and producers. Says Jan Kruger: "Putting reefer container shipping programmes in place is both intensive of management time and involves the use of expensive equipment and systems. Hence, it is important that assets are well utilised."
• The availability of reefer equipment is key to growing the containerized reefer trade; so too the optimum usage of containers and fast turn-around of containers. It is important that shippers and consignees return empty boxes as soon as possible, not only to avoid demurrage and detention charges, but to ensure equipment availability. This is particularly important for 'unbalanced' trades eg in trades where, for example, reefer exports are dominant and the import:export flow of reefer boxes is unbalanced.
• There been high demand for reefer equipment in recent months (particularly June/July 2008). The reasons for this high equipment demand are varied, but a contributing factor appears to be the impact the shortage of conventional space has had on freight rates ie freight rates for reefer containers are currently (mid 2008) more price-competitive than the equivalent per pallet freight rate.
• Despite the high demand for reefer equipment during the June/July 2008 peak period, Safmarine was able to accommodate the equipment needs of all its contracted reefer customers.
• Demand for reefer boxes was also impacted by the fact that the European market paid high prices for fruit during the European 2008 summer season, which boosted fruit exports out of South Africa - and the subsequent demand for equipment - beyond the original export forecasts.
• Environmental concerns are likely to have a stronger influence the future of the reefer shipping business.
• Safmarine is committed to working closely with customers, not only to accurately identify current carbon emission footprints but to explore opportunities, as partners, to reduce these emissions. One example is Safmarine's involvement in the work being done by major South African fruit exporter, Colors. In 2007 Colors set up a joint project between itself, Safmarine and three other UK importers with the view of formulating a credible and verifiable carbon footprint calculation that will allow it to accurately determine the impact of its export supply-chain to the UK. Colors is also working with other partners in The Carbon Trust to help pilot a carbon footprinting standard.
• As a member of the A.P. Moller-Maersk Group Safmarine also has access to the environmental initiatives implemented by the Group. The QUEST (Quality and Energy efficiency in Storage and Transport) programme, the Carbon Footprint Calculator and SupplyChain CarbonCheck TM are three of many initiatives.
• QUEST is a software solution that controls temperatures in reefer containers; it was introduced at the beginning of 2008. The solution - which is applicable to all reefer services in the AP Moller-Maersk Group (both Maersk Line and Safmarine) - manages the temperature within the reefer container, cutting the energy consumption used for cooling by up to 50% without impacting the quality of the refrigerated produce.
Advantages of Quest
• QUEST enables a reefer container to run at a variable temperature range as opposed to the previous system which operated on a fixed, set-point, range.
• QUEST results in a better quality turnout and because the reefer container is not working constantly during the voyage it runs on less power and is more energy and environmentally friendly.
• The result is a pristine reefer product at the point of discharge.
Infrastructure/cold chain issues
• The need to improve reefer infrastructure in sourcing countries, particularly in developing markets, is well-known and documented. Growth of the reefer trade in many developing countries is often limited by the level of investment in cool chain infrastructure. Those developing countries that are improving their intermodal transport, infrastructure and post harvest treatments will optimize their export/import capacity.
• While significant investments have been made by Transnet Port Terminals in improved infrastructure for the main reefer port of Cape Town, investment in reefer facilities in Port Elizabeth, a fast-growing reefer port, has been limited, possibly because of the huge focus on the new port and industrial enterprise zone in the vicinity of Coega. Kruger believes 'Investing in interim reefer facilities at PE to match the growth in production will allow the eastern Cape to realise its full potential as a fruit exporting region. Currently a significant proportion of the citrus from this region has to be moved to Cape Town, which raises shipping costs and increases the risk of product damage."
Safmarine's total reefer service - global:
• Historically the market leader in the Europe-South Africa trade, Safmarine has used its decades of experience in the reefer (refrigerated) shipping industry to expand its presence around the globe.
• Safmarine - as a member of the world's largest liner shipping group, the A.P Moller Maersk Group - has access to a world-class reefer container fleet. This access has contributed significantly to Safmarine's ability to grow its reefer business beyond its Southern Africa based trades.
• Although Safmarine is seen as a leading reefer shipping line serving the Africa market, Safmarine is also active in a large number of markets including the Far East, Europe, Gulf and India/Pakistan, and North and particularly, South America.
• Safmarine's primary reefer trades are those between South Africa and northern Europe and the Mediterranean, but the company sees many opportunities, especially in high-growth economies like China, India and the Middle East. It also has a number of interesting possibilities in non-traditional reefer trades as a result of its slot-sharing deals with its sister company, Maersk Line.
• Safmarine remains an attractive option for shippers wanting to deal with a reefer carrier that has the knowledge and expertise, not only of the technical aspects of the shipping process, but which also has the knowledge and the equipment to extend the post-harvest treatments of the grower and in doing so, ensure a high quality product reaches its final destination.
• A partnership approach is important to both shipping lines and reefer shippers. Safmarne believes the relationship between line and shipper is becoming increasingly interdependent.
Update on global reefer industry:
• The global reefer industry is "reasonably strong"; the entire sector grew between 5% and 8% last year (2007), while Safmarine's global reefer growth outperformed this figure. We are likely to see similar growth for 2008.
• Global reefer growth represents a combination of container and breakbulk volumes; Safmarine's growth stems largely from the conversion of breakbulk into containerised reefer cargo.
As at 1 Sept 2008
Input from Safmarine South Africa's reefer team, including Ian Fairlie, John Macdonald and Jan Kruger
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